Unemployment Continues To Be Relatively Low Despite a Record Fall in GDP

Unemployment in June increased slightly to 2.6.%. This is against the background of a record 10.7% drop in GDP for the second quarter. However, once government support is withdrawn and the full impact of the COVID 19 crisis hits the economy, unemployment is likely to increase significantly later in the year. Photo credit: KK / Brno Daily.

Czech Rep., Aug 4 (BD) – The second quarter seasonally adjusted GDP figures show the Czech economy fell 10.7% against last year. This fall has broken all records for the independent Czech Republic. Vladimír Kermiet, Director of the Czech Statistical Office (CSO) comments that this is ‘mainly due to a significant decline in foreign demand, as well as lower household consumption and investment activity.’ Trade, transport, accommodation and hospitality also had a significant negative effect on the reduction in the GVA (Gross Value Added) figure. 

However, Lukáš Kovanda of Czech Fund writes that recent figures have shown other European countries have fared worse. Overall the first estimate for the Eurozone is a 15% drop year-on-year. Germany, where the shutdown was more nuanced than in the Czech Republic, saw an 11.7% fall. Austria, which tried to open up quicker than the Czech Republic was down 13.3%. The countries that are widely acknowledged to have suffered most from COVID 19 have, unsurprisingly, seen their economies hit the hardest. Italy, Belgium and Spain suffered falls in GDP of 17.3%, 14.5% and 22.1% respectively. This latter fall is the largest ever recorded in European History. 

Further afield USA GDP dropped over 30% in the same quarter. Partly as a result of the perceived good performance of the Czech Republic in combating the virus and to some extent the relatively good GDP figures, the Czech currency has strengthened generally and in particular against the dollar. Last week the exchange rate fell below 22.25 to the dollar having been as high as 24.25 in early June. Although it is probably more accurate to say that the Czech economy is performing very badly, whilst most other countries are performing even worse. Against the Euro the crown has also strengthened from earlier in the year, trading last week from just below 26.2 to 26.29. Komerční banka are expecting it to be stable around this level over the summer and then strengthen after that.

Despite the current continuous low rates, unemployment is expected to rise to at least 5% in the first quarter of 2021. Photo credit: Freepik.

You would expect record falls in GDP to lead to a surge in unemployment, yet the Czech Statistical Office figures for June show only a small increase over the figure for May, 2.6% against 2.4%. June’s figure was 0.8% higher than a year ago, although even at the time that was seen as unsustainably low. Without the coronavirus crisis most analysts were expecting a rise in unemployment anyway due to inflationary wage pressures leading companies to control their staff costs by reducing numbers. The Czech National Bank would have also taken steps to control inflation. Dalibor Holý a director at the Czech Statistical Office commented ‘While the number of hours worked has already returned to near-normal levels (compared to lockdown), the effects of the coronavirus crisis have become more apparent in unemployment. …We are seeing an increase in the number of men looking for work.’ It is clear that this latest figure is being kept low by the massive government support for companies and as this unwinds companies will be laying more people off. České spořitelna are expecting this to rise to 5% in the first quarter of next year. Although even this may be optimistic if normal economic activity continues to be disrupted by measures to combat COVID 19. 

It is hard not to suspect that even as production is stepping up in factories and shops are returning to normal, there are large parts of the economy e.g. tourism, travel and hospitality that are only surviving due to external support of one kind or another. As a result the main economic consequences of the coronavirus crisis will not be felt till the autumn.

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