Czech Republic’s Economic Growth Stagnates, Falling Behind EU Average
According to a recent analysis, the Czech Republic is facing long-term economic stagnation, slowed wage growth, and a decline in the standard of living for its citizens. However, there is hope that increased support for production with higher added value could reverse this trend.
The Czech Republic has benefited greatly from foreign investments and the use of technology-intensive production methods. However, data from the Chamber of Commerce suggests that the country’s steady progress towards the EU average came to a halt before 2008, when the global financial crisis hit the Czech economy hard. Since then, the convergence with the EU has significantly lost momentum.
While the Czech economy had closed the gap with the EU average by 14 percentage points by 2009, it has only managed to narrow it by four percentage points since then. In contrast, Poland has closed the gap with the EU average by twenty points since 2009. If the current trend continues, it is not unlikely that Poland could surpass the Czech Republic economically in a few years, according to the analysis.
Further convergence with more developed countries, not only in terms of wages, will be challenging given the current structure of the Czech economy, says the Chamber of Commerce. To achieve the same level as Western countries, the Czech economy will have to move away from middle-income traps and shift towards production with higher added value. In such a scenario, it is possible to maintain competitiveness despite relatively high labor costs, stated Zdenek Zajek, the president of the Chamber of Commerce.
One of the main problems of the Czech economy, according to experts, is its low added value generation. In international comparisons, the Czech Republic ranks 24th out of 27 EU countries in terms of added value creation. The domestic economy has yet to escape the middle-income trap and transition to production with higher added value.
To facilitate the shift towards production with higher added value, both the private sector and the government must prioritize investment and innovation, according to the Chamber of Commerce. The government will play a crucial role in changing this trend. In addition to strategic investments in energy, transportation, data, and other infrastructure, investments in research, development, and education will be essential. The government must also incentivize companies to engage in innovative activities, emphasized Zajek.
Investment in Research and Development
In terms of corporate investment in research and development, the Czech Republic significantly lags behind neighboring Germany and Austria. Although research and development spending by Czech companies reached its highest level as a percentage of GDP in 2021, at 1.25%, it still falls below the EU average of around 1.5% of GDP. It will be necessary for the government to increase its investment activity and separate the investment budget from the regular budget, concluded Zajek.
How can the Czech Republic overcome its reliance on low-value production and increase its focus on high-value production sectors?
S is crucial for the Czech Republic’s long-term economic growth. However, the country continues to face challenges in achieving this due to its reliance on low value-added production and a lack of investment in research and development.
To reverse this trend, the analysis suggests that the Czech Republic should focus on supporting production with higher value-added, such as advanced manufacturing and technology. This would not only boost economic growth but also lead to higher wages and an overall improvement in the standard of living for its citizens.
The analysis also highlights the importance of attracting foreign investments and implementing technology-intensive production methods. These factors have played a significant role in the Czech Republic’s economic success thus far, and further emphasis on them could help propel the country closer to the EU average.
Despite the challenges, there remains optimism that the Czech Republic can turn its economic stagnation around. With the right policies in place, increased investment in research and development, and a focus on high-value production, the country has the potential to regain its momentum and close the gap with the EU average once again.
“Looking forward to learning about the specific challenges and innovative solutions for economic growth in the Czech Republic. Adding value and research investment hold great potential for driving sustainable development in the country.”
“Agreed, focusing on adding value and research investment is crucial for the Czech Republic’s economic growth. Excited to learn more about the specific challenges and innovative solutions being proposed.”