macro grafici 3The job market is improving and the unemployment rate is decreasing in the Czech Republic. The official unemployment rate, measured lately on the active population, decreased to 5.9% in September. Whereas the more traditional rate, measured on the entire population, recorded a low 7.1%. Figures all the more positive since they are less influenced by the summer seasonal jobs. Eventually the industrial sector is creating some new jobs, after several months of jobless recovery. It is worthy of note that the number of job vacancies is the highest in five years. That proves again how the most developed areas, such as the Prague region, always have good job opportunities and can’t even fulfill them all. Whilst the weakest regions don’t seem to be able to grow. The renewed interest in the so-called kurzarbeit seems to be nothing more than a tool to use public money to pay salaries in depressed areas. It seems like a paradox that a state has to use such tools when the jobs vacancies are so high. Maybe promoting territorial mobility would be more useful and productive.

Industrial production

macro grafici 1Again, the industrial output in September recorded very handsome figures. At constant prices, industrial sector grew by 8.3% y-on-y. Obviously, the crown devaluation reduces the effective rate of growth. Nevertheless, the industrial sector is growing at a nice pace also in the year’s second half. The new orders level too has grown significantly in September, by 15.5%. Expectation are for a very positive end of year. One consequence is the creation of new jobs and new vacancies, and also growth in nominal salaries, albeit small. Once again, automotive sector contributes the most to the growth, but less than in the previous months. When considering that Euro zone industrial output is stagnating, or even negative in some areas, one must conclude that the Czech performance must be envied by most. It has to be noted, though, that the industrial sector is massively dependent on foreign demand for goods, and very little on domestic demand.


macro grafici 2As well as in September, the inflation rate for October was 0.7% on a y-on-y basis. In other words, the Czech Republic is in deflationary state. This is basically a heavy disappointment for the National Bank. The devaluation of the crown decided in November 2013, and fostered again now in November 2014, was expected to turn into fuel for the stagnating domestic demand. Instead, it turned out well only for exporters, since it reduced the production costs for export oriented goods. This is a certainly positive outcome, but many see this as a mere transfer of resources from families to exporters, instead of improved power of purchase for domestic goods that turns afterwards into healthy inflation. Let’s not forget that an inflation rate below 2% is always negative for the economy. Unfortunately the osmotic effect of the Eurozone deflationary state is too strong for a small country such is the Czech Rep. The Central Bank is doing what it can, but the effects on this matter are not that significant, unfortunately.

Foreign trade

macro grafici 4September posted again a solid performance, recording good trade balance figures. The balance was in positive territory by 13.9bn crowns (about half a billion euro). The surplus is slightly decreasing with the EU area on a y-on-y basis, but things are improving against the non-EU regions, especially Asia. The most significant factor in this improvement is the sharp reduction of imported fuel prices. When considering the crown devaluation, exports and imports in euro grew by 8.4% and 6.4% on a y-on-y basis, whilst in dollars they grew by 4.8% and 2.8%. During the first 9 months, the trade balance surplus was 39bn crowns (about 1.4bn euro). Once again the figures indicate how critical is the export sector for the Czech economy, which is becoming the provider of cheaply manufactured goods to the EU, especially Germany. Therefore, every effort is being spent in keeping exporters in good health, even if that means depressing the domestic demand and reducing the Czech families power of purchase.

by Gianluca Zago