The Czech Republic’s labor market remains resilient with the unemployment rate steady at 4.60% in December 2025. This figure is unchanged from November and slightly elevated compared to the 4.30% low recorded in April and May 2025. The current rate aligns with the 12-month average of approximately 4.40%, reflecting a modest but persistent softening in employment conditions over the past eight months.

Drivers this month

• Manufacturing sector slowdown contributed to a 0.10 percentage point upward pressure.
• Services sector hiring remained flat, offsetting potential increases.
• Seasonal adjustments related to year-end holidays had minimal impact.

Policy pulse

The unemployment rate remains above the Czech National Bank’s (CNB) preferred natural rate estimate of around 4.20%, suggesting some slack in the labor market. This supports the CNB’s cautious stance on further monetary tightening despite persistent inflationary pressures.

Market lens

Immediate reaction: The CZK currency showed marginal depreciation of 0.10% against the euro in the first hour post-release, reflecting market interpretation of steady but subdued labor market conditions. Short-term government bond yields remained largely unchanged.

Core macroeconomic indicators provide context for the unemployment rate’s stability. GDP growth slowed to an estimated 1.20% annualized rate in Q4 2025, down from 2.10% in Q2. Inflation remains elevated at 6.30% year-over-year, pressuring real wages and consumer spending. Wage growth moderated to 4.50% in November, below inflation, eroding purchasing power.

Monetary Policy & Financial Conditions

The CNB has held its key policy rate steady at 7.00% since October 2025, balancing inflation control with growth concerns. Credit conditions tightened slightly, with bank lending growth slowing to 3.80% year-over-year. The labor market’s plateaued unemployment rate supports the CNB’s wait-and-see approach.

Fiscal Policy & Government Budget

Fiscal stimulus has been modest, with the government maintaining a near-balanced budget. Public investment increased by 2.50% year-over-year, focusing on infrastructure and digitalization. However, limited fiscal expansion constrains demand-side support for employment growth.

What This Chart Tells Us

Market lens

Immediate reaction: The CZK/EUR exchange rate dipped 0.10% post-release, reflecting market expectations of steady but cautious monetary policy. Short-term yields on Czech government bonds remained flat, indicating no immediate shift in risk sentiment.

Looking ahead, the Czech labor market faces a mix of risks and opportunities. The base case scenario (60% probability) projects unemployment holding near 4.60% through Q1 2026, supported by moderate GDP growth of 1.00% and stable inflation around 5.50%. In this scenario, the CNB maintains current rates, balancing inflation and growth.

Bullish scenario (20% probability)

Stronger-than-expected export demand and easing inflation could reduce unemployment to 4.30% by mid-2026. This would support wage growth and consumer spending, potentially prompting the CNB to pause rate hikes sooner.

Bearish scenario (20% probability)

Geopolitical tensions or external shocks disrupt trade, pushing unemployment above 5.00% by Q2 2026. This would increase labor market slack, weaken wage growth, and risk a mild recession, forcing the CNB to consider easing monetary policy.

The Czech Republic’s unemployment rate stability at 4.60% masks underlying vulnerabilities. Slowing growth, persistent inflation, and external risks temper optimism. Policymakers face a delicate balance between containing inflation and supporting employment. Financial markets have so far digested the data calmly, but volatility could rise if downside risks materialize.

Structural trends such as labor force aging and digital transformation will continue to shape the labor market over the medium term. Investments in skills and innovation remain critical to sustaining employment and productivity growth.

Since 2020, the Czech unemployment rate and the CZK50 index have shown an inverse relationship. Periods of rising unemployment, such as during the 2020 pandemic shock, coincided with sharp declines in the CZK50. Conversely, falling unemployment supported market rallies in 2021 and early 2025. The current plateau in unemployment at 4.60% corresponds with a cautious but stable CZK50 performance, suggesting markets are pricing in moderate growth and steady policy.

The Czech Republic’s labor market is at a crossroads, with stable unemployment masking emerging headwinds. Policymakers and markets must navigate a complex environment balancing inflation control and growth support in 2026.