More bad news in store on unemployment

Shock figures on the Czech jobs front in April have focused attention on how bad unemployment will become before it gets better. Most analysts are predicting worse to come. One major question is what will happen when temporary measures to cushion the blow - such as European scrap allowances – disappear.

April’s jobless figures were an unpleasant surprise. In a month when the total usually goes down as farm jobs and the building trade start hiring, the jobless figure climbed to 7.9 percent from March’s 7.7 percent. That puts the unemployment total at just over 450,000.

Most analysts warn that the figures will continue to get worse as the jobs market usually lags behind the trend in the wider economy. Raiffeisenbank analyst Michal Brožka says higher jobless figures could be on the cards for at least the next 12 months.

“I think the peak will be above 9.0 percent, it can be like 9.5 percent in 2010, some time in the middle of 2010.”

A lot of the jobs being lost so far have been in the manufacturing sector, the mainstay of the Czech economy. One exception to this trend is car manufacturing. Here, major manufacturers like Škoda Auto, the country’s biggest exporter, and joint venture Toyota Peugeot Citroën are back to a full working week.

That is in large part thanks to the scrap incentives in many countries, such as Germany, which have encouraged drivers to trade in their old cars for new models. But many of the national scrap allowances are themselves coming to the end of the road with a big question what direction car demand will take when they disappear.

“It is a temporary affect, the scrap allowance. It is a question how the real economy will develop in the second half of the year when these one-off effects will disappear. Then we will need the global economy, Western markets, to stabilise or grow, in a better scenario”

For those seeking a sliver lining, Mr Brožka believes the macroeconomic figures could start looking better towards the end of the year. But recovery on the jobs market will take much longer.