Increases recorded in both inflation and unemployment

Economist Jan Sykora: 'Right now is not a good time for the government to be further leveraging the economy and increasing the fiscal budget deficit...'

The news for the Czech economy has been very positive so far this year. Until Wednesday that is, when the unemployment and inflation figures for July were released, showing that 20,000 more people out of work than in June, and inflation is on its way up. Analysts are relatively calm about the increases, saying seasonal influences are to blame for the growth in unemployment and that growing consumer demand is fuelling inflation. But despite positive forecasts, there is criticism of the government's handling of the economy. Nick Carey reports.

Jan Sykora of Wood & Company
July saw the end of a relatively long period in which unemployment in the Czech Republic had been slowly decreasing, as the economy recovered from the recession that hit the country in 1997, and moved into positive growth. The rate of unemployment rose by 0.4% in July to 8.5%, with an extra 20,000 people registered at labour offices around the country, bringing the country's jobless total to almost 440,000. Although the figures seem worrying, analysts are upbeat. According to David Marek of Patria Finance, this is a seasonal phenomenon, with fresh high school and university graduates hitting the job market at the end of the academic year:

"I wasn't surprised because it was mainly caused by seasonal factors. Every year in July new people arrive on the labour market, because of the end of the school year. So, the fresh young people who have ended their studies are registered at the labour offices and that's why the rate of unemployment increases."

Inflation also increased in July, reaching 5.9%, the highest level since December 1998. This has come as little surprise to analysts, because of the strong economic growth recorded so far this year. Jan Sykora is an economic analyst at Wood & Company:

"As the purchasing power and wealth of the economy increase, people are more likely to spend more money, and the retail sector usually takes advantage of that and they raise their prices. But I think that's a natural trend that we usaully see in a growing economy."

But despite the lack of surprise at these increases, and the positive forecasts for future GDP growth, which is expected to reach some 3.8% for 2001, analysts are critical of the Social Democrat government's handling of the economy. Continued government spending, which is intended to further boost growth, at a time when the economy is doing well and the country has a large public finance deficit, says Jan Sykora, is a mistake:

"Right now is not a good time for the government to be further leveraging the economy and increasing the fiscal budget deficit, and basically increasing the debt burden, so I think the government should be much more prudent as far as their spending plans are concerned."

And although unemployment is set to fall again as the economy continues to grow, David Marek of Patria Finance is concerned about the ever-increasing numbers of the long-term unemployed and the government's lack of action in tackling this problem:

"The number of people out of work for a long period is increasing. It's worrying and it's an area where there is room for active policies on the part of the government. The government could offer these people incentives, for example, some requalification programmes and so on. I think the government's support in this area is not as strong as it should be."