In a recent interview with Tomáš Dvořák, a Czech economist from Oxford Economics, he discussed the reasons behind Czechia’s slow economic recovery post-COVID-19. Dvořák, who has lived in the UK for about a decade and recently moved back to the Czech Republic, chose to study in Glasgow initially due to the absence of tuition fees for EU citizens before Brexit. He expressed affection for Glasgow, despite its rough initial impression.
Dvořák was quoted in a Die Welt article that labeled Czechia as the „sick man of Europe” economically. He believes this situation originated during the pandemic when Czechia failed to reach pre-pandemic GDP levels. The subsequent energy crisis, exacerbated by Czechia’s energy inefficiency and heavy reliance on Russian energy imports, further impacted the economy. Czechia’s industry-heavy economy, beneficial in the past, became a liability due to high electricity costs during the crisis.
Dvořák points out that current economic challenges in Czechia are not solely due to past events. High interest rates and tight monetary policies by the Czech National Bank, aimed at curbing inflation, have dampened economic growth. These policies have reduced investments and increased household savings, further slowing down the economy. Additionally, weak demand in the eurozone, especially Germany, impacts Czechia’s export-oriented economy.
The Czech government’s austerity measures, aimed at balancing public finances, are also contributing to the economic slowdown. These include cutting expenditures and raising revenues, which, while necessary for long-term stability, are affecting short-term economic growth. Dvořák suggests that restructuring or slowing the pace of these measures could be beneficial.
Dvořák also discusses the issue of low salaries in Czechia despite low unemployment rates. He attributes this to Czechia’s role as a 'middleman’ in the supply chain, producing low value-added inputs, which limits wage growth. Surprisingly, real wages have fallen during the energy crisis, despite tight labor market conditions. He speculates that non-standard functioning of the Czech labor market and cultural factors might contribute to stagnant salaries.
Looking at the broader picture, Dvořák differentiates between cyclical and structural weaknesses in the Czech economy. While cyclical factors like high interest rates are temporary, structural issues like neglect of the energy sector and green transformation need addressing. He emphasises the need for a consistent long-term strategy beyond successive governments, focusing on decarbonising the energy sector and addressing demographic challenges.
When asked about green policies, Dvořák agrees that 'green’ is almost a taboo for Czech politicians, though recent government rhetoric acknowledges the challenges in the energy sector. He stresses the need for action beyond just words to address these issues effectively.
