Double dip recession threat looms over ČR

Who will help this time?

Double dip recession threat looms over ČR

Prague – European data on industrial orders from the first half-year give a warning against the possibility of a double-dip “W”-shaped economic crisis. Compared to the second half of the last year, the increase in industrial orders was only 1 percent, 14 countries experienced a decrease.

Czech industrial companies reported a 5 percent decrease in orders. Together with other East European countries, namely Latvia, Slovakia, Hungary, Rumania and Slovenia, the Czech Republic faces a prospect of the crisis hitting the second bottom.

The industry is slowing down also in the West, but orders are still growing in most of the countries, including Germany, France, and Great Britain. Among the old EU member states, as expected, Greece, Spain and Ireland are reporting problems, however these are different problems than those faced by new EU members from the East.

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The troubled economies of the euro-zone periphery haven’t started to recover from the 2009 crisis yet, so their way out of the crisis can be best described by the letter “L”.
Who will help this time?

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In 2008, industrial orders data gave a different picture. The industrial activity was slowly decreasing in Germany and other developed countries of North-Western Europe, including Scandinavia.

At the end of summer, orders fell dramatically, dragging along the East European countries which had not been experiencing any problems until then.
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Back then, the Czech industry suffered from the economic fall of Germany, but at the end, the proximity to the industrial giant paid off. Germans supported industrial output by the famous car scrappage scheme and started to recover from the crisis already in the first half of 2009. Czechs and some other East European countries benefited from the scheme as well, and eventually followed the German economic rise.

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The Czech industry is heavily based on car production. Time will show whether it’s an advantage or a burden.Zdroj: Reutersvětší obrázek »

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This time, the industrial slow-down starts first in Eastern Europe. Two years ago, German economist and expert on crises Günther Schnabl warned that East European countries should not rely on their ability to export their way out of the crisis as East Asian countries did when hit by a crisis in 1997.

Countries such as Korea, Philippines, Indonesia, Malaysia, or Thailand were selling their products to America, China and Japan, in addition they also traded with each other.

On the contrary, the countries of Eastern Europe depend solely on one market. The absolute majority of their products are imported by old EU members, which also provide almost all investment.

“Countries such as the Czech Republic, Hungary or Bulgaria have no own growth model, they are waiting for growth impulses to come from the West,” pointed out Schnabl.

But after the car scrappage scheme and slow economic recovery in the last year, no new impulse is seen coming from the West.

However, if the expected drop in industrial orders in fall this year doesn’t take place, the possibility of the Czech economic crisis having the “W” shape does not necessarily have to materialize.

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