Czech companies to cut thousands of jobs

The Czech Republic is now beginning to be more affected by the world financial crisis. After a number of industrial companies announced cutting thousands of jobs, the government has, for the first time, admitted taking action to help the economy.

Tatra, Avia, Bosch and Alcoa are some of the companies whose employees might not enjoy the best Christmas this year. More than 20 employers, mostly in the automotive textile and glass industry, have announced massive layoffs. Vladimír Bystrov is the spokesman for the Tarta truck maker, based in northern Moravia. He says that although the cutbacks will not be that dramatic, some of their people will have to go.

“By the end of the year, we should have 500 fewer employees compared to June of this year. But we have to say that in the first six months of 2008, we took on some 400 people. So the total reduction during this year is about one hundred people.”

By the end of the year, Czech companies will cut down more than 7,000 jobs. Some of the companies, like Tatra, decided to act even before the outbreak of the financial crisis, but others have seen their markets shrink along with a drop in demand for their products. Exporters have also complained that the strong Czech crown is not helping. Tatra’s Vladimír Bystrov again.

“The first decision to reduce pay-roll costs came in July; that was before the financial crisis really occurred. Tatra was strongly hit by the development of the Czech crown’s exchange rate to the euro and US dollar. But the crisis deepened the problems caused to all truck manufacturers, including Tatra.”

Next week the Czech Parliament is set to vote on the draft of the country’s budget for next year. The Finance Ministry estimates the GDP growth for 2009 at 3.7 percent. But the central bank has lowered its forecast at 2.9 percent and OECD has put it even lower - at 2.5 percent. On Wednesday, the finance minister admitted for the first time, that action might be needed to boost the export-oriented Czech economy. Jakub Haas is a spokesman for the Finance Ministry.

“The Czech government is planning some provisions if the GDP growth next year drops below two percent but we cannot provide any details at the moment. But some measures have already been taken – for example a reduction to the corporate income tax rate.”

Analysts suggest that the government should re-assess the state budget’s revenues which will certainly be affected by the slowing-down economy. Pavel Mertlík is the chief economist at Raiffeisen Bank. He says that if levels of Czech exports are not restored next year, things will get much worse.

“What is very important is the question of how the crisis will continue. What I have in mind in particular is whether we can expect a global slump in production for, say, 9 months, followed by some recovery, or whether the continued development will be lead to a global stagnation. If it’s prolonged too far, the effects for exporting economies, such as the Czech, will be quite massive.”