Macroeconomic data published today confirm that the Czechia has one foot in recession. Unemployment is growing less than expected so far, but this may change very quickly this year.
The specification of the growth of the Czech economy in the third quarter of last year published today is an unpleasant surprise. Refinement by two-tenths of a percentage point, from 1.7 percent year-on-year growth to 1.5 percent, practically none of the experts expected. In the vast majority of cases, experts counted on confirmation of a growth rate of 1.7 percent.
The koruna against the euro reacted to the new figures by weakening from record levels since 2008, down to below 23.93, back above 24.00. The decline in real incomes, mostly caused by the highest inflation in the last thirty years, took a bigger toll than expected in the period from July to September last year. Today, the CZSO confirmed a quarter-on-quarter drop of 0.2 percent in the Czech economy, which is in line with expert expectations. However, this confirms that the Czechia has “one foot in a technical recession”. This is likely to be confirmed by the data for the last quarter of last year, which are yet to be published.
Recession without adjective
This year, there is a risk that the technical recession will turn into a recession without an attribute, i.e. a recession that is already more widely accompanied by a rise in the unemployment rate and other unfortunate social phenomena.
However, the unemployment rate last December exceeded expert expectations when, according to today’s data from the Labor Office, it showed a level of 3.7 percent. At the same time, experts most often counted on its growth to 3.8 percent. Despite reports of downsizing and layoffs, for example, in the manufacturing industry, captured in last week’s survey of its purchasing managers, the growth in the unemployment rate remains practically in line with long-term trends from a macroeconomic point of view.
Analyst Boris Tomčiak: Czech households have become very rich in the last seven years. We are doing good
This year, according to Boris Tomčiak, the founder of Finlord, we can count on a recession, i.e. a drop in GDP. “But that doesn’t mean the end of the world,” he points out, reminding us that we’re not bad at all. “In seven years, the situation of the Czech household has improved by 50 percent,” says Tomčiak, referring to GDP growth per capita. Both inflation and interest rates should be on the decline at the end of the year.
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Unemployment this year? Just five percent
The increase in the unemployment rate between November and December is an annual affair, related to the onset of the winter season 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 job vacancies exceeded the total number of job applicants, by almost 17,000. The unemployment rate was 2.9 percent 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 due mainly to the fact that the unemployed do not accept any job offer presented to them by the labor office.
Over 250,000 jobs offered by employment offices are for low-skilled employeeswithout the need for even a high school diploma, so it is understandable that the unemployed do not “flock” to such positions.
However, due to continued strong inflationary pressures and recession, and the end of fixed-term contracts in December, it is necessary to expect that this year the unemployment rate can reach up to five percent and it can surprise you unpleasantly as early as January. Then it would really be a full-blown recession, not just a technical one, even though a large part of the unemployed could relatively easily get a substitute job, but usually much less well paid and not matching their qualifications.
Petr Dufek: Corporate profits are growing, while Czech households are getting poorer
The increasing profitability of companies on the one hand and the drop in real incomes of households on the other. According to Petr Dufek, Chief Economist of Banka Creditas, the results of the statistical office’s sectoral accounts published today can be summed up simply.
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