Since 1990, the Institute of Economics regularly publishes macroeconomic and social analyses of the transformation process of the Czechoslovak economy. Their main aim is to analyze the progress of transformation and social feasibility of the reforms, and to evaluate economic policy. This paper summarizes the main conclusions of the latest analysis. The first stage of transformation of the Czechoslovak economy is characterized by a significant decline of economic activity (resulting from the fall of domestic and foreign demand), a stabilizing trend of the price levels after the price shock of the beginning of 1991, a changing institutional framework, and starting privatization. Price liberalization together with restrictive monetary and fiscal policy have gradually restored economic equilibrium (especially internal equilibrium). After a fast price growth, the level of wholesale and retail prices stabilized in the last months. But the process of restructuring is only commencing. Adaptability of economic agents to the changed conditions is very limited: most state-owned enterprises, awaiting privatization, operate with a very short time horizon, cutting investment sharply, and trying to maintain the level of production, and of employment. The Gross Domestic Product will decline roughly by 14% in 1991; personal consumption, by one fourth. Inflation rate will be about 55 %; the number of unemployed by the end of the year, approached 527 thousand. The current account deficit of the balance of payments will not exceed 400 million dollars. Retail trade turnover in current prices will grow by 5 %. In real terms, it will decline by more than a quarter. Industrial production will fall by more than 20 %, output in construction by one quarter. Investment will decline by one third. Unemployment is a problem of growing urgency. Unemployment is varying strongly i different regions, depending on the structure of production. Regional differences which arose in 1991 are persisting. The relation between the numbers of unemployed in both republics (45 % in the Czech Republic, 55 % in the Slovak Republic) is inverse to the relation of their shares in total employment (which is 68 % in the CR and 32 % in the SR). The gap between unemployment rates in both republics has been permanently growing. Differences in unemployment in regions and districts are connected with gradual restraint of some types of production, and with starting structural change. No significant changes of the above mentioned trends can be expected in the short time horizon. Growing regional differences prove also the absence of a regionally specified employment policy. The fall in economic activity, as well as the existing inflation, influenced the trends of money incomes. Wage incomes and incomes of co-operative farmers were low both in relative and absolute terms, while the social incomes grew much faster - as a result of the endeavour to soften the impact of growing costs of living. Positive from the economic point of view is the fast growth of incomes in the private sector, as well as the achievement - after long Preliminary calculations show that by the end of 1991, about 13 % of households will be on or under the official minimum level of income. Another roughly 17 % of households will be within 25 % above the official minimum income. All these households can be characterized as poor (or potentially poor). More detailed figures for 1991 indicate that thriftiness and self-restraint in demand and consumption are gradually acquiring a longer-lasting character. In spite of - or, maybe, just because of - their worse financial situation, the households refrain from immediate consumption, trying to create financial reserves protecting them from future insecurity. The households' behaviour is more and more characterized by a longer-term horizon. Such behaviour as a response to insecurity is showing many characteristics proving an (often unconscious) application of the portfolio theory, diversification of economic activities which secure financial means for the household, and spreading of the risks posed by a deteriorated economic situation. Household behaviour is reflecting a mixture of old and new consumption models; for the next future, the probability is high that both types of consumption behaviour will alternate. A more definite shape of consumer behaviour is only emerging, and, especially in the first half of 1992, it will be forming under strong social and political pressures. Social indicators for 1991 permit a conclusion that the transformation of the Czechoslovak economy until now has not surpassed the limits of social tolerance. In spite of the fact that the fall of real incomes was deeper than expected, economic policy remained socially feasible. In 1992, it can be expected that Gross Domestic Product will fall moderately, by 3 to 6 A turn of this downward trend can hardly come earlier than at the end of 1992, or in 1993. The pre-election period will in all probability exert a negative influence on the decisiveness and rigor of economic policy; this may prolong the period of recession and stagnation of the economy. In enterprises, short-sighted decision-making and uncertainty will prevail. Positive effects of "big" privatization can only be expected in the medium horizon. Nevertheless, the endeavour will further grow to replace the stagnating home demand (and falling demand in former C. M. E. A. countries) by exports. Trends in investment will be highly diversified. Demand will grow for public investment, for reconstructions and repairs. A turn in investment activity of enterprises will only come later, at best from the second half of 1992. Inflation - provided that the restrictive monetary policy, and non-inflationary fiscal policy, goes on - will be between 10-15 % in 1992.
