Final Report

CFA Society Forecasting Dinner 2017 Survey

Donath Business & Media Herzmann

CFA Society Forecasting Dinner 2017 Survey

Final survey report March 2017

Dear reader,

We are happy to present to you the final report of another of our traditional surveys, conducted on the occasion of the annual CFA Society Forecasting Dinner 2017, organized by the CFA Society Czech Republic. Again this year, in cooperation with Donath Business & Media and the consulting company Herzmann, we selected questions related to the recent developments in Czech economy. Given that this is a year of parliamentary elections, we could not avoid engaging in a certain degree of political stock-taking.

We hope you find the results of the survey interesting.

Marek Jindra, CFA President CFA Society Czech Republic

Table of contents

About the survey ...... 4 Key findings ...... 5 Assessment of government policies ...... 6 What to expect from parliamentary elections ...... 8 The CNB’s exit and the future rate of the crown ...... 11 What to do with the budget surplus? ...... 14 The best money man ...... 18 About the respondents ...... 20 Statement on free distribution ...... 21

About the survey

The survey was conducted on the occasion of the 15th annual CFA Society Forecasting Dinner 2017, organized regularly by the CFA Society Czech Republic. The theme of the annual meeting of leading domestic and foreign economists, held this year under the auspices of Governor Jiří Rusnok of the Czech National Bank, is a discussion of the trends in the Czech economy and on the global markets. The PR agency Donath Business & Media, in cooperation with the consulting company Herzmann, conducted the on-line survey for the CFA Society Czech Republic on January 16-30, 2017. The purpose of the survey was to map out the views of economic and financial experts on selected aspects of the Czech economy and on some general social issues.

Invitations to take part in the survey were extended to:  members of the CFA Society Czech Republic, and candidates of the CFA Program;  leading figures of the Czech business and financial sector (VIPs);  readers of the electronic bulletin The Fleet Sheet's Final Word.

The questions focused on:  monetary policies of the Czech National Bank;  fiscal policies of the Czech government;  assessments and expectations of political trends.

A total of 1,593 respondents took part in the survey. The invitation was extended to 8,855 individuals, i.e. the rate of response was 18%. The respondents’ views of the matters polled are described below.

Key findings

National Bank intervention to end by mid-year, financial sector says Only one-fifth (20.5%) of the respondents from the financial sector believe that the ČNB will end its currency intervention later than mid-2017. More than two-fifths (43.0%) expect the exit earlier than the mid-year date indicated by the central bank. Most respondents (54.9%) expect the crown to grow stronger in the 12 months after the end of the intervention and do not expect the ČNB to resume the intervention. This view is held most strongly by the VIP and CFA groups (71.2% and 70.2%, respectively). One-fifth of all respondents (19.4%) believe a stronger crown rate could make the ČNB resume its intervention. Whilst the majority agree that the rate of the crown will likely grow stronger in the one-year period after the exit, the forecasts for the rate immediately after the lifting of the intervention measures are not that uniform. About one-third of the respondents (36.1%) expect a jump in the rate of the crown of more than 5%, whilst another third (33.5%) expect a less dramatic change of less than 5%. Only one-fifth (19%) foresee a merely slight change in the value. Most VIP respondents (53.4%) expect the change to be up to 5 per cent. Only 27.1% expect an abrupt change of more than 5%, as against 40.3% of the financial-sector respondents. The current government parties most likely to form the post-election cabinet The election year is an opportunity to review the degree to which the current government coalition has fulfilled its election promises. The majority of those polled (56.8%) believe that the coalition cabinet has failed to fulfill most of its pre-election pledges. In our 2014 survey, just after the formation of the current government, 42.9% of the respondents expected the new cabinet to contribute to the prosperity of the nation, whilst just as many expected the cabinet to harm the economy. Compared with these expectations, only a negligibly larger segment of the respondents (45.3%) now see the real contribution of the government to the Czech economy as positive; the number of critics has grown by a slightly larger amount (to 46.0%). The majority of the VIP (52.1%) and CFA (53.5%) respondents, as well as those from the education sector (59.9%), view the coalition government positively; businessmen and private-sector respondents in general see it rather negatively (52.0%). The vast majority of the respondents believe that television (88.3%), internet media (86.6%) and social networks (83.3%) will be most influential in this year’s elections. According to 93.7% of the respondents, ANO will be in the next cabinet, whilst 63.9% expect KDU-ČSL to make it, and 58.6% believe ČSSD will be there. The most hopeful of the opposition parties is STAN, though only 28.3% expect it to be part of the next cabinet. Janota the best post-1989 Finance Minister, finance sector loves Kalousek No contender for the best post-1989 Finance Minister won the majority of the votes. The winner is the caretaker minister Eduard Janota (25.3%), followed by the current minister Andrej Babiš (21.9%); Miroslav Kalousek ended up third (16.7%), closely followed by the father of the economic transformation, Václav Klaus (16.1%). Quite interesting is a comparison of the results by the respondent’s sector. Janota and Babiš are the winner and the runner-up in the sectors of business, public administration and education, whilst the financial sector voted for Kalousek (25.6%), with Babiš ending up fourth (14.8%). Almost three-fifths of the respondents (57.5%) believe the experience of Minister Andrej Babiš from the management of his firms affects the national economy. Less than one-fifth (17.9%) see the effect as negative, whilst almost twice as many (39.6%) view it positively. One-third (35.5%) believe his experience has no significant effect. Men trust Babiš more often than women (whose view about him is more ambivalent). What should the government do with the budget surplus? The majority (57.7%) favors using it to repay the national debt. Almost one-fifth of the respondents (19.5%) would spend it on one-off investment projects, and 15% would keep it as reserve. Although most respondents support the use of the treasury surplus to pay back the debt, more than four- fifths (80.6%) believe the government should invest more in the long term.

Assessment of government policies

Q1: The current coalition Cabinet has fulfilled most of its election-campaign promises.

VIP 44.3% 32.8% 5.7% 15.6%

CFA 34.7% 31.6% 3.1% 30.6%

FSFW 34.5% 37.5% 18.1% 9.0%

The election year offers an opportunity to review the degree to which the government coalition has fulfilled its campaign promises. The majority of the respondents in the 2014 CFA Society survey supported the creation of a coalition of ČSSD, ANO, and KDU-ČSL, although skepticism prevailed about whether the campaign promises would materialize. Only about a third of respondents (35.2%) now see most promises as being fulfilled. VIP respondents (mostly top management, financial sector, age group 45-54) view the coalition more positively: 45.9% of them see most of the promises as being fulfilled, 38.5% as unfulfilled.

Q2: Have the policies of the current coalition Cabinet helped or harmed the Czech economy?

Helped significantly 2014 4.0% Helped somewhat 4.4% 8.7% 14.2% Harmed somewhat 14.8% 9.3% Harmed significantly 38.5% Do not know 41.3%

33.6%

31.2% Certainly help Definitely hurt Probably help Don’t know Probably hurt

In the 2014 survey, 42.9% of the respondents expected that the policies of the new coalition cabinet would enhance the economic prosperity of the nation; an equal number expected the new cabinet to harm the economy. In comparison, only a fractionally larger respondent segment today (45.3%) views the government’s real contribution positively, whilst the number of critics has grown a little more (to 46.0%). The majority of the VIP (52.1%) and CFA (53.5%) respondents, as well as those from the education sector (59.9%), view the coalition government positively; businessmen and private sector respondents in general see it rather negatively (52.0%).

What to expect from the parliamentary elections

Q3: What effect do you expect the individual types of media to have on the results of this year’s parliamentary elections?

Print media 9.8% 44.1% 41.9% 4.2%

Television 45.8% 42.5% 9.6%

Radio 6.0% 32.5% 52.2% 9.3%

Internet media 38.5% 48.1% 12.6%

Social networks 40.5% 42.8% 15.0%

Definitely significant Rather significant Rather insignificant Definitely insignificant

Print media

VIP 116%. 521%. 331%. 3. 3% CFA 177%. 448%. 354%. FSFW 9. 1% 433%. 431%. 4. 5%

Television

VIP 529%, 355%, 116%, CFA 47, 9% 458%, 63%, FSFW 45, 0% 429%, 97%,

Radio

VIP 67%. 403%. 429%. 10. 1% CFA 232%. 516%. 22. 1% FSFW 61%. 325%. 531%. 8. 3%

Internet media

VIP 240%. 620%. 140%. CFA 469%. 448%. 83%. FSFW 392%. 471%. 127%.

Social networks

VIP 331%. 488%. 182%. CFA 400%. 421%. 179%. FSFW 412%. 423%. 145%. The vast majority of the respondents believe television (88.3%), internet media (86.6%) and social networks (83.3%) will be the influential media in this year’s elections.

Q4: Do pre-election polls affect the way you vote in parliamentary elections?

VIP 12.0% 29.9% 55.6%

CFA 21.9% 37.5% 38.5%

FSFW 8.6% 28.4% 60.1%

The vast majority of the respondents (87.6%) deny that they allow pre-election polls to affect their parliamentary election preferences, with the only difference in the CFA group, whose views are less uniform.

Q5: Which political parties do you expect to be part of the Cabinet that emerges after this year’s parliamentary elections?

ANO 93.7%

KDU-ČSL 63.9%

ČSSD 58.6%

STAN 25.8%

ODS 18.2%

KSČM 14.5%

TOP 09 12.1%

SPD 4.9%

ÚSVIT 4.8%

One of the other parties 13.5%

The respondents believe that the current government parties are the most likely to be part of the cabinet after this year’s elections. Almost all of respondents (93.7%) expect ANO to be in the next cabinet. Interestingly, more respondents expect KDU-ČSL to stay than ČSSD (63.9% and 58.6%, respectively). Only a relatively small segment of respondents expects opposition parties to join the next cabinet, with STAN having the greatest chance (25.8%). This may be related to the ongoing talks between STAN and KDU-ČSL.

The ČNB’s exit and the future rate of the crown

Q6: When do you expect the intervention against the crown to be halted?

VIP 34.5% 17.6% 44.5%

CFA 37.2% 12.8% 46.8%

FSFW 29.1% 30.1% 29.5% 11.3%

Expectations as to when the ČNB will halt the intervention into the rate of the crown vs. the euro are quite evenly distributed among the three scenarios. Almost a third of the respondents expect the ČNB to halt the intervention sooner than mid-2017 (31.7%), whilst a fraction fewer believe that the ČNB will adhere to its plan of ending the intervention in mid-year (30.0%). More than one-quarter believe the ČNB will stop the intervention even later (28.1%). A closer look at the individual respondent groups shows that fewer than about one-fifth of those in the VIP, CFA and financial-sector groups (20.5% in the financial sector, 17.6% in the VIP group, and 12.8% in the CFA group) believe the ČNB will not end its intervention until after mid-2017. About half (46.8%) of the CFA respondents even expect the end of the intervention before the mid-year date indicated. A notably different view is that of those from education, of who more than a third (34.2%) expect a later end to the intervention than June 30. Similar views were found among those in the public-institutions and FSFW readers groups (31.9% and 30.1%, respectively).

Q7: What exchange-rate movement do you expect in the 12 months after the intervention is halted?

VIP 5.1% 5.9% 71.2% 14.4%

CFA 5.3% 4.3% 70.2% 16.0% 4.3%

FSFW 10.2% 5.8% 52.4% 20.1% 11.5%

Most respondents (54.9%) expect that the crown will grow stronger in the 12 months following the end of the intervention, and that the ČNB will not resume its intervention. This view is even stronger in the VIP and CFA groups (71.2% and 70.2%, respectively). One-fifth of those polled (19.4%) believe a stronger crown could make the ČNB resume the intervention.

Q8: What will be the immediate effect of halting the intervention against the crown?

VIP 27.1% 53.4% 13.6% 5.9%

CFA 35.5% 46.2% 17.2%

FSFW 36.9% 30.9% 19.6% 12.7%

Male 38.9% 34.0% 18.4% 8.7%

Female 23.7% 32.5% 21.2% 22.6%

Whilst the majority agrees that the crown’s rate will grow stronger in the 12 months following the exit, views about the exchange rate direction immediately following the end of the intervention are less uniform. More than one-third of respondents (36.1%) expect an abrupt surge of the rate of more than 5 %; one-third expect an increase of less than 5%; and only about one-fifth (19%) expect a gentle change. The expectations with regard to the immediate direction of the crown differ even between groups that are otherwise of much the same opinion. Most VIP respondents (53.4%) expect the change to be up to 5%, and only about one-fourth expect a jump of more than 5%. Those from the financial sector and private sector in general see it differently. About 40% of these expect a jump of more than 5% (financial sector 40.3%, private business 39.5%).

What to do with the budget surplus?

Q9: How should the budget surplus be used?

VIP 19.7% 51.3% 27.4%

CFA 20.2% 46.8% 29.8% 3.2%

FSFW 14.2% 59.0% 18.1% 7.2%

Most respondents (57.7%) propose to use the budget surplus to repay the national debt. Almost one-fifth (19.5%) would invest it in one-off projects, and 15% would keep it as a reserve. The CFA and VIP groups advocate one-off investment more often than the Final Word readers, who are unusually strong advocates of the repayment of the national debt (59.0%) and relatively strong advocates of using the surplus to raise salaries and pensions, though it is not a very favored option even in this group (7.2%).

Q10: Last year's budget surplus was partly the result of lower public investment. Should the state invest more in long-term projects?

VIP 79.8% 14.3% 5.9%

CFA 84.2% 9.5% 6.3%

FSFW 80.4% 13.0% 6.7%

Although most respondents favor the use of the budget surplus to repay the national debt, more than four-fifths (80.6%) believe the government should invest more in the long term. We polled this group for three preferred target areas, as is illustrated on the following page.

Q11: Where should long-term government investment money go? (Up to three areas)

Transportation infrastructure – expansion and 73. 6% modernization of motorways and railway networks

Education 68. 7%

Science & Research 49. 8%

Defense & security 21. 9%

Health 21. 9%

Telecoms / Information infrastructure 19. 7%

Environment 13. 1%

Energy infrastructure (not counting 9. 6% the expansion of Temelín) Construction of new nuclear reactors, 9. 4% perhaps including the use of feed-in tariffs

Culture 3. 6%

Three-fourths of those respondents who believe the government should invest more in the long term favor targeting the investment at transport infrastructure (73.6%); two-thirds would invest in education (68.7%). One-half of the respondents favor research. Much-less-favored areas are security (21.9%), health (21.9%), and information infrastructure (19.7%).

Q12: How in your view does the business experience Finance Minister Andrej Babiš brings to his government job contribute to the economic success of the country?

VIP 35.6% 17.8% 39.0% 7.6%

CFA 40.9% 14.0% 38.7% 6.5%

FSFW 39.8% 18.2% 35.0% 7.0%

Male 40.2% 16.4% 37.2% 6.2%

Female 34.8% 25.0% 29.3% 10.9%

Almost three-fifths of respondents (57.5%) believe the experience of Minister Andrej Babiš from the management of his firms affects the national economy. Those who see the effect as positive are about twice as prevalent as those who believe it is negative. About one-third of the respondents (35.5%) believe the minister’s experience has no significant effect. Men are more likely to view Babiš’s business experience as positive (40.2%) than women, who are a little more critical (34.8%).

The best money man

Q13: Who do you consider the best post-1989 Finance Minister?

Eduard Janota 25. 3%

Andrej Babiš 21. 9%

Miroslav Kalousek 16. 7%

Václav Klaus 16. 1%

Pavel Mertlík 6. 1%

Jiří Rusnok 4. 7%

Ivan Kočárník 2. 4%

Jan Fischer 2. 0%

Vlastimil Tlustý 1. 8%

Ivan Pilip 1. 6%

Bohuslav Sobotka 0. 5%

Karel Špaček 0. 4%

Ivo Svoboda 0. 3%

Jan Klak 0. 1%

No contender for best post-1989 Finance Minister won the majority of the votes. The winner is the caretaker government minister Eduard Janota (25.3%), followed by the current minister, Andrej Babiš (21.9%); Miroslav Kalousek ended up third (16.7%), closely trailed by the father of economic transformation, Václav Klaus (16.1%).

Quite interesting is a comparison of the results by the respondent’s sector. Janota and Babiš are the winner and the runner-up in the sectors of business, public administration and education, whilst the financial sector voted for Kalousek (25.6%), with Babiš ending up fourth (14.8%).

Financial sector

Miroslav Kalousek 25. 6%

Eduard Janota 20. 2%

Václav Klaus 19. 9%

Andrej Babiš 14. 8%

Pavel Mertlík 5. 1%

Education

Eduard Janota 25. 0%

Andrej Babiš 22. 9%

Miroslav Kalousek 15. 0%

Pavel Mertlík 11. 4%

Václav Klaus 10. 7%

Other public institutions

Eduard Janota 31. 2%

Andrej Babiš 24. 7%

Václav Klaus 11. 0%

Miroslav Kalousek 9. 1%

Jiří Rusnok 5. 8%

Other private-sector business

Eduard Janota 26. 1%

Andrej Babiš 22. 4%

Václav Klaus 16. 8%

Miroslav Kalousek 15. 8%

Pavel Mertlík 6. 0%

About the respondents

By sector

Financial sector Education 19.5% Other public institutions Other private-sector business

10.1%

59.8%

10.6%

By position in the corporate hierarchy

By age

Under 25 8.7% 25-34 35-44 18.0% 45-54 55 and above 50.1%

22.2% Male Female 18.0%

By sex

82.0%

Statement on free distribution

Authors of the survey

Donath Business & Media has been active in public relations and public affairs since 1991. For more information about the agency, see www.dbm.cz. Michal Donath Donath Business & Media Spálená 29 110 00 Praha 1 Tel.: +420 224 211 220 E-mail: [email protected]

The Herzmann advisory has worked in the fields of marketing, communication and market research since 2009. For more information see www.herzmann.cz.

Herzmann s.r.o. Otopašská 12/806 158 00 Praha 5 – Jinonice Tel.: +420 731 403 699 E-mail: [email protected] Survey partner

An English-language e-mail bulletin about political and economic events in the Czech Republic. More at www.fsfinalword.com. Fleet Sheet (E. S. Best, s. r. o.) Tel.: +420 296 580 160 E-mail: [email protected]