Unemployment data seems to show some improvement for May and for June. The unemployed among active population decreased to 6.4%, and were 7.5% of the total population, in May. Figures which are way better than those of the last few months and on a y-on-y basis. We must note, though, how the metrics have changed, so data are not easily comparable. In any case, a couple of labour-intensive FDI projects have been finalized, meant to improve the employment levels in disadvantaged areas. Also, the growing industrial output is certainly creating new jobs, albeit in a small quantity. The reason is that companies are reaching for higher productivity. That is quite a positive development, since it is preparatory to the creation of new, more stable and less dependent on simply salary levels jobs. As usual, Prague region is at almost full employment, whilst the traditionally weak regions keep suffering a lack of jobs. It is becoming more and more difficult to find skilled employees, but it is still very difficult to find jobs for the less skilled workers, especially if they are not willing to relocate where jobs are available.
Industrial output keeps growing at a nice pace. In May it increased by 2.5% or even up to 5.0%, according to various metrics. The biggest boost was clearly done by the crown depreciation, that made Czech goods cheaper to export. One effect was a significant increase in the nominal GDP, which made politicians very happy. As usual, the automotive is the main engine of the industrial sector, again thanks to strong exports towards mainly EU markets. Unfortunately, however, the output growth is brought mainly by exports and not by a strong domestic demand. It not only is not growing, but seems to be getting even lower. The fact is that production is targeted to exportable goods, and imported goods are about 5% more expensive than last year. Consequently, domestic demand cannot be anything but depressed, especially in a moment when public spending is very tight.
June data confirm quite officially, that the Czech Republic is in a deflationary economy, as basically is a large part of the Eurozone, and of the western economies. The official figure is 0.7% CPI on a y-on-y basis. If we account for the crown devaluation of about 5%, we see how deep is the prices compression. That might seem good news, but it actually is a very dangerous situation for the Czech economy. Unfortunately, the Eurozone policies have a strong influence on the Czech economy, and on the actions of the CNB and the government. The CNB actually tried to send out some signals of independence, one being the announced coming micro devaluation of the crown, to 28 for a euro. That is finalized to promote at least a nominal inflation. Eventually it seems that even the ECB, albeit extremely late, has realized that the pedantic ideological war against inflation is a disaster for the domestic demand almost everywhere. The hope is that the CNB puts forward a massive QE flooding the markets with fresh new liquidity, and promotes its fastest possible circulation.
Once again a strong performance in May, when the trade balance recorded 13bn CZK surplus. This poses a problem for the CNB, since it puts pressure towards a crown appreciation. That in a moment when the CNB is moving to weaken the currency. In any case, it is clearly a very good performance. The surplus with the EU area is again very large, at 51bn crown, growing by 7bn on a y-on-y basis (this is a very strong figure, even when accounting for the crown depreciation occurred in November 2013). Exports and imports grew in May by 11.8% and 9.9% at current prices. They grew by 5.4% and 7.3% when measured in euro. The figures show again how export is by far the most important segment of the Czech economy. Of such an importance that any action towards fostering exports comes first versus any other policy. Even if that means depression of the domestic demand and the reduction of the average citizen power of purchase.
by Gianluca Zago