Czech business confidence grows, but lack of workers a worry

Unemployment at 4 per cent, job vacancies growing

Czech business confidence grows, but lack of workers a worry
A worker puts up the scaffolding during a renovation of the Old Town Tower in Prague, May 26. REUTERS/David W Cerny




PRAGUE (Reuters) — Czech business confidence rose in July to a six-month high, but companies in the country with the EU's lowest unemployment rate are worried that a worker shortage is becoming a barrier to further expansion.

Some 32 per cent of firms cited in Monday's monthly national statistics office survey said a lack of staff was a brake on growth. That was the most since before the global economic crisis swept through central Europe in 2008.

The survey's business indicator — an average of readings in industry, construction, trade and services — rose to 96.1, its highest since January.

The Czech economy is expected to grow around 3 per cent this year, boosting hiring and helping drive inflation, which is leading to a tightening of central bank policy for the first time in almost a decade.

In April, the central bank abandoned a cap that had kept the crown weak against the euro for more than three years. Many analysts say it could start raising interest rates from zero, where they have been since 2012, as soon as next month.

ING's chief economist in Prague, Jakub Seidler, said Monday's confidence data, specifically on the labour issue, added to the case for a rate hike.

"It is a further signal of the beginning of an overheating economy," he said in a note. "Also for this reason, ... it is very likely (the central bank) will move to raise rates already at its next policy meeting in early August."

Unemployment fell to four per cent in June and is at its lowest since before the crisis in 2008, and job vacancies are growing.

That is putting upward pressure on wages, which should feed further into inflation that has been at or above the central bank's two per cent target since December.

While the export-driven Czech economy is highly reliant on the car sector, the tight jobs market is showing up in other industries, raising production costs.

"The pressure to raise wages is enormous," said Alzbeta Honzova, spokeswoman at Randstad, one of the country's biggest job agencies for firms.

"Although companies in the last year and a half have gradually raised salaries, employees' appetites are growing faster and wage growth is not at an end."


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