Czechia’s Economy is Growing – Yet Poland and Romania Are Closing the Gap

According to the Prime Minister and the latest economic index, Czechia is flourishing, even as Poland and Romania begin to close the gap.

According to data released by the Prosperity and Financial Health Index, Czechia now boasts the ninth healthiest economy in the European Union.

GDP and consumer spending are on the rise, inflation has been tamed, debt levels remain stable, and Czech companies are steadily returning to domestic ownership.

While such progress might prompt celebrations and counter the narrative of an imminent takeover by Asian economies, there’s an important caveat: even though GDP and consumption are increasing, our pace is slow compared to other nations, where growth is notably swifter.

“Czechia is doing well. Both GDP and consumer spending are growing,” Prime Minister Petr Fiala stated on the FLOW program. His remarks were meant to boost the morale of citizens—many of whom, he believes, are reluctant to spend due to a gloomy outlook.

He also dismissed claims that the government’s consolidation measures have squeezed the budgets of low-income households. In fact, real wages are rising, and the government recently reduced the VAT rate on food from 15% to 12%, a welcome move given that groceries are the largest expense in most households. However, regional economic comparisons suggest that not all growth is created equal—a sentiment that low-income families might share.

Recent figures from the Czech Statistical Office show that by the end of the third quarter last year, GDP had grown by 1.3%, with a quarter-to-quarter increase of 0.5% in the final quarter.

Economists and banks now forecast annual growth to settle at around 1%. While rising GDP and spending offer reasons for optimism, experts warn against overexuberance.

Eastern Europe is Gaining Ground

It is often said that “slow and steady wins the race.” Yet the rapid growth in countries such as Poland, Romania, and Hungary suggests that Czechia may have slowed down too much.

While neighboring nations have been diligently training on the economic track, pushing ahead with vigor, Czechia appears content to admire a display of past achievements. Although none of these countries has yet overtaken us, their accelerated progress should serve as a wake-up call.

In the late 1990s, Czechia’s GDP at purchasing power parity was at 75% of the European Union average. Just before the COVID-19 pandemic disrupted both lives and budding economic recoveries, the figure had risen to 96% of the EU average.

In simpler terms, both domestic and international firms were thriving, and consumers were eager to spend. Then COVID-19 closed factories and shops, and in the European context, our once-robust growth fell by four percentage points—a gap that remains difficult to bridge.

From Model to Outsider?

It is important to note that consumer spending alone does not capture the overall quality of life. It does not reflect access to healthcare, the quality of education, or the state of transportation infrastructure.

In Czechia, however, household consumption accounts for roughly half of GDP, making it a crucial pillar of the economy. Unlike their counterparts in Poland or Romania, Czechs have largely chosen to save rather than spend.

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