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Commission Report (2002): Czech Republic
The Czech
economy has returned to solid growth rates following a recession in 1997 and
1998. The currency crisis of 1997 revealed macroeconomic imbalances caused by
a transition path that had not sufficiently underpinned macroeconomic reforms
with microeconomic restructuring. As a result, the external balance became
unsustainable and it was necessary to introduce an austerity package which
led to output decline and rising unemployment. The economy regained growth in
1999 on the basis of increasing external demand. More recently, domestic
demand has become the driving force of growth. However, the disastrous
flooding, which hit the country in August 2002, might weigh on the short-term
economic performance in the second half of the year. Accelerating growth of
fixed investment, not least pushed by strong foreign direct investment (FDI),
has upgraded the production capacities of the economy. This has resulted in
productivity gains and an increasing competitiveness of Czech goods. The
current account deficit has risen as economic activity has gained pace.
However, the deficits have been fully covered by the surpluses on the
financial account. Wage increases broadly in line with productivity growth
have allowed for a rise in private consumption in tandem with low inflation.
Monetary policy has successfully pursued its disinflation path keeping the
inflation rate on low single digit levels. The strong appreciation of the
Czech crown against the euro since the end of 2001 led the government and the
central bank to agree on a bundle of measures to contain further significant
appreciation. Overall, the economic policy mix has improved since 1997.
However, the fiscal stance of the government has loosened in recent years. In
the absence of structural reforms on the expenditure side of public budgets,
this could endanger the medium-term sustainability of public finances.
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Main Economic
Trends |
|
Bulgaria |
|
1997 |
1998 |
1999 |
2000 |
2001 |
Average |
2002 latest |
|
Real GDP growth rate |
percent |
-0.8 |
-1.0 |
0.5 |
3.3 |
3.3 |
1.1 |
2.5 Q1 |
|
Inflation rate |
|
|
|
|
|
|
|
|
| -
annual average |
percent |
8.0 |
9.7 |
1.8 |
3.9 |
4.5 |
5.6 |
3.2
July1 |
| -
December-on-December |
percent |
9.4 |
5.8 |
2.5 |
4.0 |
3.9 |
5.1 |
0.2 July |
|
Unemployment rate |
|
|
|
|
|
|
|
|
| -
LFS definition |
percent |
4.3 |
5.9 |
8.5 |
8.8 |
8.0 |
7.1 |
7.7 Q1 |
|
General government budget
balance |
percent of
GDP |
-2.7 |
-4.5 |
-3.2 |
-3.3 |
-5.5 |
-3.8 |
|
|
Current account balance |
percent of
GDP |
-6.1 |
-2.3 |
-2.8 |
-5.5 |
-4.7 |
-4.3 |
|
|
Million
ECU/EUR |
-2.835 |
-1.187 |
-1.470 |
-3.082 |
-2.9452 |
-2.304 |
-504
Jan.-March3 |
|
Gross foreign debt of the whole
economy |
percent of exports of
goods and services |
42.5 |
45.2 |
46.8 |
38.1 |
: |
: |
|
| -
debt export ratio |
Million
ECU/EUR |
11,224 |
13,5994 |
14,563 |
14,792 |
: |
: |
|
|
Foreign direct investment
inflow |
percent of
GDP |
2.5 |
6.6 |
11.6 |
9.8 |
8.7 |
7.8 |
|
| -
balance of payments data |
Million
ECU/EUR |
1.148 |
3.303 |
5.932 |
5,405 |
5.489 |
4.255 |
725
Jan.-March5 |
| Sources:
Eurostat. National sources. OECD external Debt
Statistics |
|
- Moving
12 months average rate of change.
- Source:
Website of the National Bank.
- Source:
Website of the National Bank.
- series
break as a result of some technical changes to the definition.
- Source:
Website of the National Bank.
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Substantial progress in structural reform has paved the way for a
growth-supportive economic environment. Since 1999, the supply side of the
economy has considerably strengthened with the help of strong foreign direct
investment and accelerating growth rates in fixed investment. Increasing
productivity and higher competitiveness have encouraged the Czech export
sector. After a long-winded and costly process, banking privatisation was
completed in 2001. This has speeded up the final restructuring of the sector
and has improved the conditions for more business oriented financial
services. This and an upgrade of regulation and supervision, which brought it
closer to international standards, has put the stability of the financial
sector as a whole on a firmer footing. Restructuring and privatisation of
state-owned enterprises in the corporate sector has progressed and has left
over only some large-scale sensitive cases. The banking and corporate sector
have largely been freed of bad assets which are now concentrated in the
portfolio of the Czech Consolidation Agency, the state`s bail-out
institution. Efforts to sell off the bad assets to private investors, which
had stalled for some time,were recently resumed.
The Czech Republic has made no progress in terms of real income
convergence with the EU. In 2001 the average per capita income in purchasing
power standards amounted to 57% of the EU average. As regards the income
level, there is a marked difference between the capital and the rest of the
country. Prague reached 124% of the EU average in 1999 but all the other
regions remained well below 75% in 1999. The economic activity rate has been
at relatively high levels of around 71 -- 72%. However, over the same period,
the employment rate fell significantly from 68.5% to 65% reflecting the rise
in unemployment. The unemployment rate was 8% in 2001 with higher rates for
young people (16.3%) and women (9.6%) than for men (6.7%). Unemployment has
been increasingly concentrated among the less skilled. The rise of long-term
joblessness as a share of total unemployment has continued for several years
now. In 2001, it rose to 52.9% up from 32.3% in 1997. Prague is hardly
affected by unemployment at all while regions undergoing industrial
restructuring are burdened with persistently high unemployment.
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Main Indicators of
Economic Structure in 2001 |
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Population (average) |
Thousand |
10,224 |
|
GDP per head1 |
PPS |
13,300 |
|
percent of EU
average |
57 |
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Share of agriculture2
in: |
|
|
| -
gross value added |
percent |
4.2 |
| -
employment |
percent |
4.6 |
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Gross fixed capital
formation/GDP |
percent |
28.3 |
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Gross foreign debt of the whole
economy/GDP3 |
percent |
26.5 |
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Exports of goods &
services/GDP |
percent |
71.3 |
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Stock of foreign direct
investment |
|
|
|
Million |
23,3524 |
|
per
head5 |
2.284 |
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Long term unemployment rate |
percent of labour
force |
4.2 |
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- Figures
have been calculated using the population figures from National
Accounts, which may differ from those used in demographic
statistics.
-
Agriculture, hunting, forestry and fishing.
- Data
refer to 2000.
- Data
refer to 2000.
- Figures
have been calculated using the population figures from National
Accounts, which may differ from those used in demographic
statistics.
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© European Commission
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