Croatia’s registered unemployment rate down by 0.2pps m/m to 8.6%

(Christine und Hagen Graf, CC BY)

The registered unemployment rate decreased by 2.2pps y/y to 8.6% at the end of July, according to the preliminary statistical office data released today. The print was 0.2pps lower than that reported in June and was slightly below our initial estimates — 8.7% that assumed no change in the labour force from June. Thus, the unemployment rate is at the one-digit territory for the third month running and is the lowest ever. The number of the unemployed people decreased by 19.9% y/y in July with the pace slightly accelerating from 18.2% y/y fall reported in June, which is in line with the seasonal factors as the peaking agricultural employment and tourist season. Double-digit paces of contraction in the number of the unemployed people have been observed since January 2016 with the peak of 22.9% annual drop being reported in June 2017. We may expect these robust paces of decrease to be kept going forward, at least in the next couple of months given that the tourism sector is heading to another record this year. The number of employed people rose by 3.1% y/y to 1.449mn in July, an increase reported for the seventh straight month, whereas the number of employed persons in legal entities, which constitute the bulk of the employed, rose by stronger 3.7%. Further on the positive note, for the third month running since January 2016 the labour force increased by 0.61% y/y, with the rise slightly easing from 0.75% in June. While a major impact on this might be stemming from the already in full swing tourism season, it is yet to be seen whether the measures to activate the unemployed people, to encourage the take-up of job and to improve the matching between the education system and the labour market needs have been productive.

We may expect the unemployment rate to continue declining going forward, at least during the summer months, but the improvement is unlikely to be material as the labour market is suffering structural issues, mainly inadequacy of the labour force education and training to the labour market needs. So, while demand for new workers remain high and has been rising steadily, employers in a number of sectors (construction, tourism, shipbuilding, ICT) complain of lack of skilled personnel. Thus, last year the government raised twice the number of permits for foreigners working in the country and three times –that for this year. Yet, solving the problem with foreign workers’ quotas, similarly to spending more on active labour market policies, is in our view only a short-term and not a sustainable solution such as education system reform on which the government is currently working. The large emigration flows are the other reason for the labour market problems in the country.

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