Living standards in the Czech Republic now better than in Spain or Portugal

The Czech Republic has been one of Europe’s economic success stories since emerging from Communism in the late twentieth century. The country’s traditional heavy manufacturing industries have gone from strength to strength in the decades since, while recent years have seen the development of a dynamic tech scene driving high levels of foreign investment.

Now, the Statistical Yearbook for 2021 published by the Czech Statistical Office has confirmed the transformation of the Czech Republic into one of Europe’s advanced economies. Using the measurement of GDP per capita based on purchasing power parity (PPP), a common measurement for standard of living using by economists, the Czech Republic is now level with global power Italy, and ahead of other western European countries such as Spain and Portugal.

Czech purchasing power now stands at 92% of the EU average, higher than Spain (86%) and Portugal (77%). This achievement comes despite the severe contraction of the economy brought on by the Covid pandemic, with industrial operations suffering major interruptions and Prague’s huge tourism industry experiencing unprecedented difficulties.

Still, it’s not all good news for the Czech economy, which contracted by 5.6% in 2020, the steepest decline in the history of the independent Czech Republic. Inflation is driving significant price hikes for consumer goods, with banks trying to keep a handle on developments by raising interest rates, making mortgages significantly more expensive.

The Statistical Office's data also shows that the Czech Republic has the third-highest inflation rate in the EU, behind only Poland and Hungary, with eurozone countries suffering far less from this problem than nations with their own currencies.

A Europe-wide energy crisis has meanwhile seen prices for gas and electricity increase significantly, leading to bankruptcy for Bohemia Energy, one of the country’s biggest providers, in October.

The Czech labor market also remains extremely tight. Unemployment in the Czech Republic has remained the lowest in the EU for the fifth year running according to the Czech Statistical Office, and while this might seem like a sign of economic health, a lack of candidates for jobs is hampering growth for companies up and down the country.

The incoming government led by new Prime Minister Petr Fiala has warned of the necessity to restore balance after record levels of national debt were racked up by the previous regime during the Covid pandemic. Yet they have promised that measures will be “socially sensitive, especially with regard to our priorities in the areas of education, health care, social care and the maintenance of the existing pension valorization mechanism.”

Economists don’t envy the task of the new regime, though. Indeed, the President of the Confederation of Industry and Transport Jaroslav Hanák recently told ekonom.cz that “the government will have it unimaginably hard: the country is in a very poor shape, energy and raw material prices are rising dramatically, and many things are in short supply.”

Like the rest of the EU, the Czech Republic clearly has its work cut out to restore economic health in the wake of the pandemic. Yet the country’s move into the ranks of the bloc’s most advanced economies is, nonetheless, cause for celebration.