Higher car exports result in an extraordinarily high trade balance surplus

The external trade balance for November surprised by ending with a significant surplus of CZK20.2bn. This is nearly CZK9bn more than the year before, according to Komercni banka.

The good result is mainly due to a higher surplus in the motor vehicles balance, which was nearly CZK10bn higher than the year before. In the second half of the year, automotive sector produced a record-high number of cars, which was reflected in exports. Exports of motor vehicles increased nearly 14% yoy while overall exports added 9.7% yoy. However, import dynamics also remained solid, with imports increasing 7.1% yoy.

Despite two months when the foreign trade surplus was higher than in 2017, for the remaining period the result was always worse; in the first 11 months, the external trade surplus was nearly CZK30bn less than in 2017. Thus, despite a solid surplus in November, for the entire 2018 we expect significantly lower surplus compared to CZK163bn recorded in 2017.

In December, unemployment rose for the first time since summer

In December, the share of unemployed in the Czech Republic increased for the second time in 2018. It rose one-fifth of a percentage point to 3.1%. However, this is not the result of any turmoil on the labour market but rather seasonal effects as a lot of agricultural and construction works were finished. Thus, adjusted for the seasonal effect, the share of unemployed decreased further, although moderately. The number of unemployed increased in all districts except two: Most and Prague-West. Surprisingly, despite the strong negative seasonality, the number of vacancies rose, as well. This indicates that demand for labour is still strong. In contrast with other European countries, the Czech Republic is successful at employing young people and graduates. 

The domestic economy has been slowing down, and demand for new workers will gradually decrease. The share of unemployed will not decline much more, and in our view it will stabilise this year just below the current values. Deviations will be mainly due to seasonality. Notwithstanding demand for labour will remain higher than its supply, which will push wages up further. Wage growth will not be as strong as last year; however, it remains solid around 6.5%. This will also be reflected in consumer price dynamics, and despite lower global economic growth is the main reason the CNB will continue its contractionary monetary policy. We believe the bank board will hike three times this year and the repo rate will reach 2.5% by the end of the year.