UGLY TRUTH: The Czech Republic has the lowest unemployment rate in the EU. The state debt grows though

The Czech Republic has the lowest unemployment rate in the European Union according to an international comparison.
25.Jan 2021
 
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The grimmest of scenarios have not yet come true. While at the beginning of the coronavirus pandemic, its importance was downplayed, almost immediately, experts began taking their predictions to dark places and predicting dark times for the financial sector. The reality is relatively neutral, and the domestic economy, despite a year-on-year decline, remains at a good level. This applies both to the number of unemployed people and to the result of the economy as such.

The most visible impact on the economy is always the rise in unemployment and related indicators. In the Czech Republic, however, unemployment itself is still not growing so dramatically, although the low numbers are mainly due to the state of the Czech Republic before the epidemic.

Unemployment in numbers

As of the last day of last year, December 31, 2020, the Labor Office of the Czech Republic registered 17,451 more jobseekers than in the previous month. According to available data, the share of unemployment rose to 4%. In November, it was still 3.8%. Thus, the prospects of the OECD, which predicted a 10% unemployment rate with regard to coronavirus, were not fulfilled. However, in connection with the slight rise of unemployment, the number of job vacancies also increased.

Undoubtedly, the information from the October Eurostat data is also positive news, namely that the Czech Republic has the lowest unemployment rate in the entire European Union in an international comparison.

"The decline in employment is particularly noticeable in sectors such as transport, accommodation and catering. On the other hand, construction, public administration or IT and telecommunications recruited new employees,"

says economist Petr Dufek.

Muž sedící a ulici
Muž sedící a ulici • Source: Pixabay.com/lannyboy89

Society has changed its behavior

But as has already been said, it's not just economic indicators that change, but also how our society behaves. During the first wave, for example, there was an 80% decrease in the movement of people in public places, especially in the service sector (aka cafes, restaurants or department stores), and the same thing happened later after the Christmas holidays, according to Google data. It is into this sector that state aid must be directed to the greatest extent.

Future numbers will be affected by vaccination

The unemployment rate is likely to rise in the coming months. As in previous years, the winter season will play a role, but the global coronavirus pandemic will continue to play a significant role in the unemployment rates. Although vaccination is already beginning with the vaccines developed, society will only return to normal very slowly. The development of unemployment rates will thus depend mainly on mass vaccination coverage, and therefore estimates may differ from the result. It was the same in 2020. The forecast for last year's unemployment rate before the pandemic was in the range of 2-3%. And today we know that, given the circumstances, it reached 4% by the end of the year, according to the Ministry of Labor and Social Affairs.

Unemployment and state budget

While unemployment obviously does not have to bother the Czech Republic too much, other macroeconomic indicators do. The government spends relatively large sums of money from the state budget to fight unemployment, the expenditure part of which is thus growing relentlessly.

Ministryně financí Alena Schillerová
Ministryně financí Alena Schillerová • Source: Archiv A. Schillerové

The government, led by Minister of Finance Alena Schillerová, approved the budget for 2021 with a deficit of 320 billion crowns, but the chairwoman of the National Budget Council, Eva Zamrazilová, warned that it would probably climb to over 400 billion. The Minister of Finance herself later said that this estimate could be really realistic:

"I don't know, I'll say it at the turn of February and March. I can't rule it out."

"It's not worth publishing any preliminary numbers that can still be changed,"

commented Alena Schillerová.

The new state budget must take into account the income losses regarding the tax package, the abolition of super-gross wages and a new flat tax that will make it easier for self-employed persons to work on tax returns and reporting income and expenses for OSSZ and health insurance. Finance Minister Schiller intends to present the amendment in February or March. According to economists, however, uncertainty poses a problem. Danuše Nerudová, a KoroNERV-20 board member, for example, describes the absence of a macroeconomic forecast as scandalous.

"In uncertain times it is all the more necessary to make forecasts, as is the fiscal outlook."

said Nerudová.

The deficit itself will not decline in the coming years, not even in view of the threat of rising repayments. While the state deficit is now burdened by repayments of 40 billion crowns a year, with ever-increasing debt, they could double, economists agree. The opposition criticizes such high debts, especially given that the amount paid out to support the economy in times of the pandemic is not nearly as high as it would seem, based on the state budget.

Luxusní penthaus na Praze 1 - 226m
Luxusní penthaus na Praze 1 - 226m, Praha 1

The Czech Republic is benefiting from the situation before the pandemic

Despite the record deficit, however, the Czech Republic is benefiting, same as in the case of unemployment, from the state in which it entered the current crisis. In terms of percentage of GDP, the Czech Republic has the fourth smallest total debt in Europe; according to Eurostat, only Estonia, Bulgaria and Luxembourg had a lower debt. For example, we are beating the economically strong Nordic countries, and Sweden or Denmark are behind us as well. In addition to the above, only Romania and Lithuania are below 50% of their GDP. However, this may change with a wasteful budget and the Czech Republic may be negatively affected. The danger comes mainly from the demographic curve and the aging population, which will fully dawn on the Czech Republic after 2030. This, together with the lack of pension reform, may have a severe impact on the budget. For the sake of completeness of the comparisons across Europe, we can mention that on the opposite side are the states notoriously summarized in the abbreviation PIGS, namely Portugal, Italy, Greece and Spain. The worst off is Greece, whose debt is two hundred percent of its GDP.

HARD NUMBER: 210 055 CZK

This is exactly how much every citizen of the Czech Republic owes if we were to repay the state debt in equal numbers. Its total amount comes up to 2.2 trillion crowns.

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