Hospodářské noviny: the surprisingly low unemployment rate may not last long

Photo illustrative: skeeze / Pixabay, CC0

The decline in economic growth in the Czech Republic is accompanied by a surprising phenomenon – a relatively low unemployment rate, the financial daily Hospodářské noviny notes. Analysts predict it will not be long before the unemployment figure starts to climb.

Although industrial production fell by a quarter, year-on-year, in May and forecasts do not predict significantly better numbers for the coming months, unemployment remains at 3.7 percent – still the lowest in the EU. For comparison: before the outbreak of the coronavirus crisis in February, unemployment in the Czech Republic was at 3 percent.

According to economists whom the daily contacted the number of unemployed may increase significantly after the holidays if the situation does not start to improve soon. "By the end of the year, it could rise to as much as 8 percent, meaning that half a million people could be out of work," says Tomáš Ervín Dombrovský from LMC, which operates the Jobs.cz and Práce.cz job sites.

Photo: Michaela Danelová / Czech Radio

According to economists, there are a number of reasons that are keeping the unemployment rate down. Primarily, it is government assistance. The government’s kurzarbeit and COVID aid programs, intended to prevent massive layoffs, have helped about 56 thousand companies that applied for  grants for over 700, 000 employees. This has cost the state budget approximately 14 billion crowns since March.

This support is guaranteed only until the end of August. However, companies have already indicated that if the government does not extend it until the end of the year, they will soon resort to layoffs.  The labor and social affairs minister, Jana Maláčová, as well as the minister for transport and industry  Karel Havlíček have indicated that the government is planning to extend the aid.

Another reason for the low unemployment figure is that so far it has been the smaller local companies that have laid off workers. Multinational corporations are still waiting to see how the situation develops. “Large companies make these decisions later, but subsequently their decisions have a greater impact. It also takes much longer before they start recruiting people again," Dombrovský told the paper, referring to the last major economic crisis in 2009.

The current optimistic unemployment numbers also do not reflect people who have been fired but are serving a two-month notice period and have not yet registered as unemployed.

And finally, the reason why companies have not laying off on a more massive scale so far is also due to developments in Germany. This market is absolutely essential for the Czech economy, since almost a third of domestic exports head there. And according to current data, German industrial production bounced back from the bottom last month. Continuing demand on the German market thus gives Czech producers reason to hope, the daily concludes.