The Czech Republic’s continued economic growth offers an opportunity to intensify its structural reforms, suggests the annual report of the European Commission, assessing the economic and social situation in EU members states. However, it also warns of increasing regional disparities, masked by the continued rise in living standards.
According to the report, released on Wednesday, the Czech Republic has made significant progress in catching up with the EU average, but there are still a number of unaddressed structural weaknesses which may slow down its further progress.
Based on its findings, the commission suggests the Czech Republic should increase its potential for long-term growth through better targeted investments in infrastructure, human capital and innovation, reducing the administrative burden and addressing labour shortages.
Although economic growth remains solid, the report indicates it may slow down in the coming years. A high reliance on exports and on foreign direct investment is seen as a key vulnerability for a small open economy such as the Czech Republic. The commission suggests addressing strategic investment gaps may increase productivity and, in return, contribute to sustainable growth.
While the report says the Czech Republic’s public finances are sound, it also suggests that the country’s long-term sustainability is less favourable. While the general government balance is expected to remain in surplus until at least 2020, long-term sustainability is worsening due to higher costs related to ageing.
The report also warns that with the employment rate rising to nearly 80 % over the past seven years, labour shortages are becoming increasingly acute. Unless relevant measures are taken to support the employment of certain underrepresented groups, the scope for further employment increases is limited.
While regional disparities are lower than in some other peer countries, the report notes that the distribution of opportunities and challenges remains concentrated within certain regions:
“In general, poorer areas have lower productivity, higher gender inequality, increasing levels of homelessness, high indebtedness and more acute demographic challenges. By contrast, richer regions perform much better in education and have a higher capacity to innovate, making them more attractive for investment.”
The European Commission has also called on the Czech Republic to step up its efforts in tackling the challenges posed by adverse climate and environmental effects, in particular for air quality and water management.