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Foreign Markets Shortage of Skilled Workers Thwarts Economy of Czech Republic

Author / Editor: Stéphane Itasse / MA Alexander Stark

The Czech Republic's competitive advantages are dwindling. In a survey conducted by the German-Czech Chamber of Commerce, companies complain above all about the lack of skilled workers and vocational training, and about the rising wage costs. However, the country is still getting good grades.

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Low labor costs are becoming a less important pillar of the Czech economy.
Low labor costs are becoming a less important pillar of the Czech economy.
(Source: Siemens)

Further points of criticism in the latest economic survey by the German-Czech Chamber of Commerce (DTIHK) were rising labor costs, a lack of transparency in public procurement and corruption.

Slowdown Expected for 2019

Although the economic situation is assessed as very good, companies expect a slowdown in 2019. Following the peak year of 2018, 70 % of the companies consider the current situation of the Czech economy to be "good" and only 1 % to be "bad". However, one in three companies participating in the survey expects the economic outlook to deteriorate in 2019. The figure among industrial companies is as high as 42 %. A year ago, not even 10 % expected the situation to deteriorate. “International economic policy developments, such as the Brexit or trade conflicts, as well as some homemade barriers are creating uncertainty, which is also reflected in the expectations of companies," says DTIHK Managing Director Bernard Bauer.

Investors are also less optimistic concerning their own business. Only 29 % expect a further increase in their exports; a year ago it was more than one in two companies. "The decline in foreign demand, especially for the Czech export motor, the automotive industry, is a cause for concern," Bauer explains. In addition, almost one in three companies expects exports to the UK to decline after the Brexit.

A major hurdle to growth continues to be the shortage of skilled workers. Due to personnel bottlenecks, every sixth company had to reject orders. On top of that, the "vocational education and training system", which receives long-term criticism for its lack of practical orientation, ranks second last among the 21 location factors for the first time. The companies therefore take the initiative: Every second company cooperates with schools, every fourth one trains the practical parts in their company.

Automation Instead of Specialists

Companies are hoping to gain greater independence from the labor market by making corresponding investments. Three out of five companies stated that they had recently invested in digitization and automation to dampen the lack of skilled workers. On average, 20 % of a company's total investment goes into automation of processes, in some cases even up to 90 %.

However, companies most frequently resort to wage increases and special payments ("more attractive working conditions") in order to succeed in the competition for workers. Every second company expects an increase in labor costs of between 3 to 8 %. Every fifth company is expecting an even stronger increase. Although this is less than a year ago (38 %), this development is nevertheless reflected negatively in the investors' assessment of the location. Investors are downgrading the factor "labor costs" even further.

This means that after three years, the Czech Republic has fallen behind Estonia in an international comparison of 15 Central and Eastern European countries. Poland follows in third place.

This article was first published by MM MaschinenMarkt.

Original: Stéphane Itasse / Translation: Alexander Stark

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