Czech economy displays growing pains

Photo: archive of Czech Government

A raft of economic figures have come out in the last days giving a much clearer picture of how the Czech economy is faring in the first months of 2016 and going forward. On the one hand unemployment this week dropped to its lowest level since January 2009. The 4 percentage point drop took the headline figure for April down to 5.7 percent. But there are other signs that the fast growth in some sections of the industrial sector is faltering as manufacturers run into problems finding suitable staff and meeting orders.

Photo: archive of Czech Government
The jobless total at the end of April stood at around 415,000, down by 28,000 compared with March and almost 80,000, lower than a year earlier. And just as telling perhaps are the number of vacancies offered by local labour offices. They have climbed to just under 125,000, the highest April total since 2008.

The fall is partly due to seasonal work, but manufacturing companies have also been hiring furiously with mixed success. A large part the uptake of new workers was men with around 20,100 finding jobs in April. In some parts of the Czech Republic unemployment is now down to 2.2 percent. In the worst unemployment blackspots, it’s still often just into double digit figures.

But other figures give a slightly more nuanced picture of the Czech economy, not so much booming as perhaps running into problems from the fast rate of growth last year of 4.3 percent. That was one of the fastest rates of growth in the European Union, stimulated in part by a rush to use or lose European funds. This year it’s expected to be lower.

In manufacturing, the latest figures for March show overall output increasing by an adjusted 3.6 percent on a year earlier and 1.4 percent on February. But there are wide variations across industrial sectors. The auto sector is still the main motor of the economy with annual growth in March of just over 11 percent and production of other transport equipment also advanced by 6.0 percent. But other manufacturing sectors were down. Chemicals production slumped by 18.1 percent and metals production was down by 7.2 percent.

“We estimate that there are around at least 250,000 to 280,000 people in this category [who do not want to work].”

And looking ahead, the value of new orders for manufacturers was down across the board by 1.4 percent compared with March 2015 with the drop affecting all sectors apart from car manufacturing. Demand eased both at home in the Czech Republic and from abroad. For the whole of the first quarter of the year, new orders are still slightly up on a year earlier, by 0.6 percent, but this is because stronger orders from abroad are slightly more than overcompensating from a drop off in domestic demand.

And the construction sector, which usually epitomizes the highs and lows of seasonal work, looked decidedly shaky in March. Output was down 12.5 percent, the number of workers was down 3.4 percent, and while the total of new building permits rose by just over 2.0 percent, the value of the work in that permit pipeline was down by around a fifth compared with March 2015.

Another signpost of how things are going is the monthly purchasing manager’s index, a sort of composite poll of these crucially placed executives. The index, which takes account of a combination of factors including workplace employment, new orders, suppliers’ delivery times, and stock levels, was down in April for the third month in a row. It’s is still just about in positive territory but new export orders were at their lowest level for the last half year.

Jan Mládek, photo: Filip Jandourek
For Minister of Industry and Trade Jan Mládek, Czech industrial exporters are in many cases still adding insufficient additional value when they supply advanced Western markets with parts and supplies which are then transformed with much greater margins added on. And those, for the most part advanced, EU markets now represent around 83 percent of Czech export demand.

Jaroslav Hanák is the president of one of the most influential lobbies in the Czech Republic, the Confederation of Industry. He told Czech Television this week that the overall unemployment figure actually gives an inflated impression of the jobless total ready to take up work and minimizes the problems faced by employers in filling vacancies. In theory there are just over three jobless people for every vacancy, but Hanák says the reality is a lot different from that.

“We estimate that out of the total of 415,000 unemployed there are people who simply do not want to work. They are employed in the grey economy or they have no inclination to work at all. We estimate that there are around at least 250,000 to 280,000 people in this category.”

“We lack between 120,000 and 150,000 workers, mostly in technical professions.”

Hanák says that reduced pool of available talent to employers is exacerbated by a severe skill shortage, especially in technical professions needed in industry, such as electricians or welders. That translates into many job vacancies on offer where employers have little hope of filling them fast.

“On the other hand it is true that we have a lack of workers. There figures are dramatic, we lack between 120,000 and 150,000 workers, mostly in technical professions. In the last survey carried out by the Confederation of Industry, companies told us that two-thirds of firms lack technicians with university degrees; half of the firms are seeking secondary school leavers; and a third of firms are looking for apprentices for technical professions. There is a really significant demand and I can remember back when the economy was expanding at a rate of 5-6 percent in 2006 and 2007 that companies then tried to outdo each other in recruiting exceptional experts and as a result wages started to rise.”

Jaroslav Hanák, photo: Filip Jandourek
It’s not surprising perhaps that the cluster of auto parts producers in the Moravia-Silesia region in the east of the Czech Republic have been fast off the mark in a bid to recruit the skilled technicians who form around half of the workforce at the struggling mining company OKD. In many cases these electricians and engineers are precisely the sort of people needed by manufacturers as well.

The confederation has long been lobbying for the Czech Republic to take a more pro-active role in allowing foreign workers, even those without the top rated professional and technical skills, into the country so that they can fill some of the gaps in the labour force. The government has some programmes prepared, after some initial uncertainty from trade unions, but Hanák complains that the programmes are not ambitious enough and they are not proceeding sufficiently fast.

“The Ministry of Foreign Affairs has reinforced the number of officials in Lvov and Kiev dealing with these passport and visa issues, but we are talking here about one, two, three or four thousand people and we need 20,000. So whatever happens with this pilot project for higher qualified workers, we have so far not even got 500 so far. And we need thousands of less skilled workers as well in various sectors of industry.”

“Two-thirds of firms lack technicians with university degrees; half of the firms are seeking secondary school leavers; and a third of firms are looking for apprentices for technical professions.”

In the past, Slovakia, thanks to the language and historic links, used to be a fertile recruitment territory for Czech industry. But the manufacturing sector there is booming at almost the same pace as the Czech Republic and there are skills shortages as well with the wages on offer not so much out of line any more with those in the Czech Republic. In fact many Slovaks are returning or have already returned home.

The head of Czech Confederation of Industry says that in such a case Czech employers should set their sights wider not just on Ukraine but also Belarus and Moldova as supplementary recruiting grounds.