CZSO: Accession to the EU helped the development of the Czech economy, supported exports and investments

Prague – Joining the European Union 20 years ago helped the development of the Czech economy. The opening of the European market supported Czech exports, which are among the main contributors to the domestic gross domestic product (GDP). After joining the union, investments in the Czech Republic also increased. However, in terms of GDP per capita, the Czech Republic has not yet caught up with the European average, reaching roughly 90 percent of the average. Chairman of the Czech Statistical Office (ČSÚ) Marek Rojíček told journalists today.

According to Rojíček, joining the EU gave the Czech economy a significant boost by breaking down trade barriers. “The advantage of the Czech Republic has increased in terms of its location, but also in terms of industry,” he said. He pointed out that the new member countries of the union were then very competitive in terms of labor costs, so European companies were interested in investing and producing more in the Czech Republic.

From the point of view of foreign trade, EU membership is very important for the Czech Republic, as 80 percent of Czech exports go to the EU. According to Rojíček, this is one of the largest shares among European states. After the opening of the European internal market, the volume of foreign trade grew dynamically.

Accession to the EU also gave a growth impetus to Czech industry, which saw a significant influx of foreign investments. This was reflected in the growth of labor productivity in industry. Rojíček also pointed out that the profitability of Czech industrial companies is above average compared to older EU members, which is due to lower labor costs. Although labor costs in the Czech Republic have increased since joining the EU, they still only reach 60 percent of the European average.

According to Rojíček, the price level in the Czech Republic is still lower than the European average, but in the last five years it has approached it by leaps and bounds. While at the time of joining the EU, prices were at 53 percent of the EU average, they reached 80 percent last year. In the past 20 years, the prices of housing and energy have grown the fastest, significantly faster than the European average, and prices in the areas of health, catering and accommodation have increased.

Accession to the EU also affected the Czech labor market. In the 20 years since the accession, the total number of workers in the Czech economy has increased by 13.5 percent, according to Rojíček, this is mainly related to the influx of foreign workers. Currently, approximately one million foreigners work in the Czech Republic, mostly in an employment relationship. EU citizens make up about a fifth of all foreigners in the Czech Republic, half of whom are Slovaks. The largest number of foreigners in the Czech Republic come from Ukraine, their share increased even more after the beginning of Russian aggression in February 2022.

Prices in the Czech Republic rose by 29 points during the 20 years of EU membership to 84 percent of the EU average

The price level in the Czech Republic rose during the 20 years of its membership in the European Union, i.e. between 2004 and 2024, by 29 percentage points to 84 percent of the EU average. It has increased by three points in the last two years. This follows from the analysis that Helena Horská, Raiffeisenbank’s chief analyst, presented to journalists today.

According to her, the price level of private household expenses is almost 90 percent of the EU average. On the contrary, the price level of the services that the government provides to Czech citizens in education, healthcare or state administration or consumes itself did not even reach three-quarters of the European level. “In other words, the relative price level of services provided by the state is still relatively low. The Czech state provides its citizens with these services at very low prices,” she pointed out.

According to her, the prices of food and non-alcoholic beverages have risen almost to the average European level, the second highest after Slovakia among the countries of the Visegrád Four (V4), which brings together the Czech Republic, Hungary, Poland and Slovakia. Residential real estate has not yet reached the price average in the EU, but has become the most expensive in the region. Housing costs have reached 78 percent of the EU average due to rising rents and utilities.

According to Horská, in the twenty years since the Czech Republic joined the EU, the standard of living measured by gross domestic product (GDP) per inhabitant has increased from 81 to 91 percent of the EU average. Of all the countries that joined the union in 2004, only Malta and Cyprus achieve higher values, and of the V4 countries, the Czech Republic is significantly closer to the EU average. In Hungary it is 76 percent, in Poland 80 percent and in Slovakia 73 percent. But the shift is considerably higher for these countries, almost 30 points for Poland, the analyst pointed out.

Although the Czech economy is significantly approaching the economic level of the EU, many regions tend to resist convergence, Horská pointed out. Above-average growth, by 130 percent, was recorded by the South Moravian region and Prague by 120 percent. Conversely, the Karlovy Vary region is approaching the slowest with growth of 61 percent and South Bohemia with growth of 80 percent.

With its economic level, the capital city moves away from other regions and increases the average of the entire republic. However, according to Horská, the South Moravian Region, which includes Brno, recorded a dynamic development, the reason for which may be the increase in the shares of the service and trade sector, especially electrotechnical and IT, and the significant allocation of European funds to support universities, science and research.

The competitiveness of Czech exports, taking into account the shift in the exchange rate and the change in labor costs, has decreased by 52 percent since 2004. According to Horská, this means a necessary shift in economic strategy from the so-called low-cost economy to sectors based on knowledge and innovation, but also to a higher share of services in exports, thanks to which higher added value can be created. The stable macroeconomic environment contributed to increasing the credibility of the Czech economy in the eyes of foreign creditors, the analyst concluded.

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