CEE: Labour market resilience persists

Erste Bank Research Team Erste Bank

On the radar

In Czechia, central bank kept the policy rate unchanged at 3.75%.
Today, Poland will publish industrial output growth in August.
Slovakia will release current account data. Unemployment rate is also due in Slovakia.

Economic developments

We continue looking into labour market data, in particular employment (as % of population) and labour market slack (as % of extended labor force). Employment in the region has been rising continuously since 2020 from around 72% to above 76% recently (CEE8 average). At the same time, labour market slack has declined substantially, from the average of around 10% in 2020 and 2021 to slightly above 7% recently. Such development is driven mostly by downward trend in Croatia and Serbia, where unmet need for employment has decreased visibly. In Czechia and Romania, by contrast, a higher share of the extended labour force reports an unmet need for employment in recent years. All in all, the labor market has remained resilient despite several years of economic shocks and relatively subdued growth. Sideway trends of employment and labor market slack suggest that the weaker economic environment has so far translated primarily into slower hiring rather than significant job losses.

Market movements

Long-term yields have eased across the region following the trend on the major markets as long-end of the curve in the US and in Germany shifted lower on Thursday following the Fed decision to hike interest rates by 25 basis points. CEE currencies have been weaker this week against euro after EURUSD fell toward 1.14. Czechia’s central bank kept the policy rate unchanged at 3.75%. Czech National Bank continues to signal that the upcoming decision will be between a rate hike and leaving rates unchanged. The central bank reiterated the need to maintain a restrictive monetary policy stance, citing several domestic factors, including strong wage growth, persistent core inflation, fiscal expansion, and robust credit dynamics. We continue to expect one additional rate hike before the end of this year, most likely at the November meeting. In Romania, President Dan nominated Mureșan as prime minister. Mureșan is a Romanian MEP and senior PNL politician. He is backed by PNL, USR and UDMR. President Dan said there is currently no clear parliamentary majority, meaning Mureșan faces a difficult path to securing the required vote and he has 10 days to gather enough support.

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Erste Bank Research Team

Erste Bank

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