Macroeconomic data released today confirms that Czechia has one foot in the recession. Unemployment is growing less than expected so far, but that could change very quickly this year.
Posted today specification of the growth of the Czech economy in the third quarter of last year is an unpleasant surprise. Two-tenths of a percentage point sharpening, from 1.7% year-on-year growth to 1.5%, virtually none of the experts expected. In the vast majority of cases, the experts counted on the confirmation of a growth rate of 1.7 percent.
The krone reacted to the new numbers by weakening against the euro from record levels since 2008down below 23.93, back above 24.00. A drop in real incomes, caused by the highest inflation in about three decades, had a greater than expected impact in the July-September period last year. Today, the CZSO confirmed a 0.2% quarterly decline in the Czech economy, in line with experts’ expectations. However, this confirms that Czechia has “one foot in a technical recession”. This should be confirmed by the figures for the last quarter of last year, which have yet to be published.
Recession without an adjective
There is a risk this year that the technical recession will turn into a no-attribute recession, i.e. a recession that is already more widely accompanied by a rise in the unemployment rate and other unfortunate social phenomena.
Unemployment rate last December however, it beat experts’ expectations when it showed a level of 3.7 percent, according to today’s Labor Office data. At the same time, experts have often counted on its growth at 3.8%. Despite reports of downsizing and layoffs, for example, in manufacturing, captured in last week’s survey of its purchasing managers, growth in the unemployment rate remains broadly in line with long-term trends from a macroeconomic perspective .
Analyst Boris Tomčiak: Czech families have become very rich in the last seven years. We are doing well
This year, according to Boris Tomčiak, the founder of Finlord, we can count on a recession, i.e. a decline in GDP. “But that doesn’t mean the end of the world,” he underlines, reminding us that we’re not bad at all. “In seven years, the situation of the Czech family has improved by 50%,” says Tomčiak, referring to per capita GDP growth. Both inflation and interest rates should be down at the end of the year.
Unemployment this year? Only five percent
The increase in the unemployment rate between November and December is an annual event, linked to the onset of winter and cold weather and the reduction of outdoor work, such as in agriculture or construction.
In the Czech Republic, even in December, the number of vacancies exceeded the total number of job applications by nearly 17,000. The unemployment rate was 2.9% in December 2019, i.e. before the pandemic and the war in Ukraine. The increase to the current 3.7 percent, which is relatively insignificant, is also mainly due to the fact that the unemployed do not accept any job offers presented to them by the employment office.
Over 250,000 jobs offered by employment offices are for low-skilled employeeswithout even needing a high school diploma, so it is understandable that the unemployed do not “crowd” into such positions.
However, due to continued strong inflationary pressures and the recession, and the end of temporary contracts in December, it has to be expected that this year the unemployment rate can go as high as five percent and can surprise unpleasantly as early as January. Then it would really be a real recession, not only a technical one, even if a large part of the unemployed could relatively easily get a replacement job, but usually much less well paid and not corresponding to their qualifications.
Petr Dufek: Corporate profits are growing, while Czech households are getting poorer
The growing profitability of businesses on the one hand and the decline in real household incomes on the other. According to Petr Dufek, chief economist of Banka Creditas, the results of the sectoral accounts of the statistics office released today can be summarized in a simple way.
