Macroeconomic Development in the 1990s

© Libor Žídek, 2004



                                         Table of contents

•           Output

–      1990-1992 – transformation decline

–      1993-1996 – recovery and boom

–      1997-1999 – recession

–      2000 – recovery

•           Unemployment

•           Inflation

                                              OUTPUT

•            Changes in the GDP in the Czech Republic between 1990 and 2002

                                  Transformation decline 1990-92

•           in all countries of the Eastern block

•           in Czechoslovakia the sharpest decline in 1991

–      cumulatively 15%

•           since 1993 economic recovery



                                        demand side factors

•            decline of all components

•            consumption

–       ò of real wages (price liberalization)

–       ñ of uncertainty (unemployment)

•             Changes in the GDP and consumption of households







•            investment

–       ñ of uncertainty – end of subventions, ownership, decline in demand, …

•            government expenditures

–       ò - new government = ò the role of state

•            trade

–       disintegration of the COMECOM

–       transformation recession in other countries

•       + lack after western production

–       start to pay in convertible currencies

–       poor quality and marketing of Czechoslovak production

•       unknowingness of functioning of markets



                                            supply side

•           troubles:

–      ñ of price of inputs

•       devaluation of crown, shift to world prices

–      ò of government subventions

–      failure of management to adopt to new situation



•           + restrictive monetary and fiscal policies

–      inflation worries

                                        decline overstated?

•           communists overstated its economic results.

•           avoid taxing (the black economy accounted something between 10 – 20% of the GDP).

•           the statistical office was not prepared

•           official inflation was probably overstated



                                   1993-1996: recovery and boom

•           very positive period

•           but at the beginning split of the country ð costs

–      direct – new IDs, embassies, …

–      indirect – trade

–      end of the fiscal transfers

•       OECD 7% of the Slovak´s GDP





•            1995 near universal euphoria

–       high growth, low U and inflation, budgets balanced

–       CR – leader among the post-communist

–       Standard and Poor´s rating „A“

–       membership in the OECD

•            growth based on:

–       investment

•       positive expectations

•       banks willingness to lend

•       but targeting (?)

–       ñ consumption



•            1996

–       ñ fixed investment by 34%! ðññ

–       but more visible problems inside the economy:

•       ñ demand > ñ production

–      ñ of wages > ñ of productivity

–      inflation pressures

–      ñ of imports

–      ðñ deficit of the CA

»      trouble during the transformation ?

»      + covered by inflow of capital

•       inflow of capital

–      positive expectations

–      interest rates differential (fixed exchange rate)

–      danger of overheating and inflation pressures ð central bank

»      „sterilization measures“

»      monetary restrictions

•       restructuring ?

•       institutions ?

•       political situation (after the election in 1996)

                                        1997-1999 recession

•           1997

–      impact of the monetary restriction

–      slow growth in Germany

–      fiscal restrictions

–      currency crises

–      floods

–      X positive impact of the trade due to depreciation of crown



•            1998 same

•            1999 recovery

•            recession

–       ò in consumption and investment

•       uncertainty

–       monetary policy

•       unknowingness

•       undershooting targets

–       institutional and structural factors ?

•            recovery since 2000

–       investment

–       growth in the EU

                                           Unemployment

•           extraordinary

•            The average unemployment rate in the Czech Republic



•           low unemployment till 1996

–      retiring

–      geographical position

–      lack of employees in services

–      business spirit

–      transformation cushion

–      ð slow restructuring?

•       + differences among the regions

–      anyway important political factor







•           worsening with recession

–      unemployment among youths

–      long – term unemployment

•           recovery

–      continuous increase in the rate of unemployment

                                             Inflation

•           upswing in 1991

–      price liberalization

•           and 1993

–      tax reform

•           1994 – 1998

–      stable inflation around 10 %

                 The average growth of the price level in the Czech Republic in %