September 11, 2017 / 10:14 AM / a year ago

Czech government agrees public sector wage hike as election nears

PRAGUE (Reuters) - Czech public sector wages will rise by at least 10 percent from Nov. 1, Prime Minister Bohuslav Sobotka said on Monday as parties gear up for parliamentary elections next month.

FILE PHOTO: Czech Republic Prime Minister Bohuslav Sobotka speaks during the news conference at the Chancellery in Berlin, Germany, April 3, 2017. REUTERS/Hannibal Hanschke/File Photo

Czech wages grew at their fastest pace in a decade in the second quarter, encouraging unions to seek a rise that would give public sector workers a greater share of the spoils from an extended period of strong economic growth.

The three parties in the EU member state’s governing coalition had all thrown their weight behind a public sector pay hike but disagreed over how to pay for it without undermining plans for next year’s budget.

“Teachers’ wages will grow by 15 percent, the rest of public sector employees’ (wages) by 10 percent,” Sobotka said on his Twitter account. He said agreement on the hikes was reached at a meeting of coalition leaders, without giving further details.

The government will on Monday begin debating the draft budget, which envisages a deficit of 50 billion crowns (1.7 billion pounds).

The Finance Ministry on Sunday raised its forecast for economic growth in 2018 to 3.1 percent from 2.9 percent. It expects budget income to be 21 billion crowns higher than originally planned, Finance Minister Ivan Pilny said.

But he had said the government still was missing 8 billion crowns to deliver the public sector pay hike as outlined by Sobotka.


The Czech economy posted record quarterly growth of 2.5 percent in the second quarter and the country’s unemployment rate is the lowest in the European Union.

Sobotka’s Social Democrats, though, have struggled to capitalise on the strong economy and trail their junior partner ANO by a wide margin in polls as the Oct. 20-21 election nears.

Analysts said the wage deal might add to inflationary pressures.

“The expected public sector wage hike can be a pro-inflationary risk, which may accelerate the overall wage dynamics next year by more than 1 percentage point,” said Jakub Seidler, ING chief analyst for the Czech Republic.

Annual inflation was unchanged at 2.5 percent in August, a touch below 2.6 percent expected by the central bank.

The bank’s next quarterly forecast for inflation and other economic developments over the next 12-18 months is due at its policy meeting on Nov. 2. The bank will meet on policy once before then, on Sept. 27.

Reporting by Robert Muller; editing by John Stonestreet

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