The Czech Republic is the only EU country that has not recovered from the pandemic recession, according to an analysis in German newspaper Die Welt. The country’s economic model has become outdated, and economists warn of a growth trap. The Czech Republic has exhausted all previous growth factors, lost competitive advantages, and fallen into the middle-income trap.
Experts warn that without adopting new high-tech industries, Czech competitiveness will continue to lag as neighbouring Poland closes the prosperity gap, with Warsaw eclipsing Prague as the Strongest urban centre in the CEE region. The Czech Chamber of Commerce argues that a well-trained workforce and low costs can only sustain growth so long, and the country has exhausted engines of the past without developing high-value industries. Some economists warn Poland may surpass Czech GDP per capita in the coming years. The situation is unlikely to change for the better in the near future, with experts predicting weak growth for next year.
The Czech economy, while robust, has faced challenges in matching the rapid growth witnessed in Poland and other former Soviet satellite states. Several factors contribute to this divergence. The structure of the Czech economy is characterized by a higher share of mature industries. While historically strong in manufacturing and machinery, these sectors have faced challenges due to technological changes and global competition. In contrast, Poland has seen growth in sectors like IT, business services, and modern manufacturing.
Geopolitical factors have also influenced trade patterns. Poland, being a larger country, has benefited from its proximity to the growing markets of Western Europe, while the Czech Republic’s smaller size makes it more exposed to the economic performance of its Western neighbors.
Moreover, differences in fiscal policies and investment strategies play a role. Poland has been more successful in leveraging EU funds for infrastructure development, enhancing its economic competitiveness. The Czech Republic, while also a recipient of EU funds, has faced challenges in fully utilizing them for sustained economic growth.
Additionally, the Czech koruna’s strength has posed challenges for exports, making Czech goods relatively more expensive. Poland, with its flexible currency, has benefited from a more competitive exchange rate.
Furthermore, the Czech Republic has struggled with a tight labor market, leading to labor shortages and wage pressures. While this reflects a strong economy, it also poses challenges for businesses, especially in low-margin industries.
