Czech Republic after 20 years in the EU: We are no longer poor relatives, but a country on the level of Spain and Italy

Today it is exactly twenty years since the great enlargement of the European Union, when the number of members increased by ten to 25 countries. We entered the Union as poor relatives, but we managed to at least partially erase the lead of the original members. According to the statistics of the International Monetary Fund, the GDP of the Czech Republic increased from 11,750 dollars in 2004 to 30,600 dollars last year, i.e. by a full 160 percent.

Let’s leave aside fashionable conversions to purchasing power parity and focus on expressing the strength of the economy in market prices. In 2004, we joined the European Union as a not very rich country, whose GDP was half the level of Greece. Today we are better off than Greece and Portugal and close to the GDP per capita of Spain and Italy. Compared to Germany, we are at 58 percent of its level, which is not a bad result compared to 34 percent in 2004.

On the other hand, it is true that the Czech Republic grew more slowly than most of the new EU member states. A simple equation applies here – the poorer a country joined the EU, the faster it grew. Therefore, in the last twenty years, Romania showed the highest growth (by an impressive 421 percent), followed by Bulgaria and the trio from the Baltics. Excluding Cyprus, the slowest growth among the new members is Slovenia, which nevertheless remains relatively the richest state in the group of countries that experienced communism.

Development of GDP per capita in the countries of the European Union

A good business card is that the International Monetary Fund ranks us in the group of developed economies, while Poland and Hungary still remain in the category of developing countries (emerging markets). The Czech Republic’s trump card is the strength of its domestic currency, which strengthened against both the euro and the dollar in the monitored period. For example, the average exchange rate of the koruna to the euro rose from 31.90 CZK/EUR to the current 25.10 CZK/EUR. It is clear evidence that we are moving from the position of an economy based on cheap labor to a higher league.

The weak points of the Czech Republic’s economic development over the past twenty years are pointed out by a study prepared by the Raiffeisenbank analytical team led by Helena Horská. Here, he draws attention to the fact that convergence to the EU average has stopped or even reversed after the outbreak of the coronavirus epidemic in 2020. As for the level of GDP after adjustment for inflation, the Czech Republic is the only EU country that has not yet reached the level of 2019.

In addition, economic growth is visible only somewhere and deepens the differences between regions. Raiffeisenbank reports that GDP per capita in crown terms increased between 2004 and 2022 in Prague by 122 percent and in the South Moravian Region by 130 percent. In the other regions, the growth was significantly lower, the Karlovy Vary region fared the worst with a growth of 61 percent.

An advantage and at the same time a disadvantage is the low unemployment rate, which has been in the range of 3 to 4 percent in recent years. This is reflected in higher wage growth, but at the same time, the low number of available workers limits the possibilities for expanding production or the arrival of new investors to the Czech Republic. Labor market tensions are also being exacerbated by an aging population, with more people retiring than leaving school.

Overall, however, the Czech Republic has moved in the right direction over the past twenty years. We have healthy banks that even go through crisis years smoothly without rescue packages from the state. The surplus balance of foreign trade is proof that there is interest in Czech goods abroad. Thanks to European funds, over these twenty years we have obtained 1.06 trillion crowns more than we paid into the common budget. Thanks to them, the construction of new roads and highways, as well as the modernization of railways and the Czech energy industry, finally gained a solid pace.

Although economic growth in the Czech Republic has been very weak for the past three years, this may soon change. For example, the long tradition of energy engineering and the arms industry can prove to be an advantage at a time when the construction of nuclear power plants is reviving here and abroad and when the whole of Europe is investing in strengthening the armed forces due to the threat from an aggressive Russia.

David Tramba