Czech Republic in 2023: Difficult economy and difficult reforms

【Reporter Connection】

Guangming Daily correspondent in Prague Yang Yiming

In January 2023, Peter Pavel, the former chairman of NATO's military committee, backed by the Czech government, was elected as the new president of the Czech Republic. As the dust settles on the presidential election, the Russia-Ukraine conflict has also entered its second year. Over the past year, the Czech government has continued to firmly support Ukraine externally, launched new measures, and has been busy with the energy crisis, economic and social reforms and other issues internally, with unknown results.

Economic growth is sluggish

The vicious circle is worrying

In recent years, the Czech economy has been severely affected by the new crown epidemic, the Russia-Ukraine conflict, the energy crisis, and supply chain disruptions. Although the pandemic has ended this year, the economy has not fully recovered, especially the disruption of energy supplies from Russia, which has made it more difficult to control inflation not only in the Czech Republic but also in the entire Central and Eastern European region. Experts believe that this situation is unlikely to change substantially in the coming years.

Currently, the Czech GDP growth rate is lower than the EU average. Over the past year, the Czech Republic, although gradually declining, still has one of the highest inflation rates in the entire European Union. And the increase in wages has not offset high inflation, which has reduced people's real income, weakened purchasing power, and reduced living standards. The Czech Republic is now one of the largest declines in living standards among OECD countries, and the resulting low expectations will further hamper the economic recovery.

The picture shows the old city of Prague in winter. Photo by Yang Yiming/Guangming Pictures

The Czech Republic has long held the record for the EU's "lowest unemployment rate" and is actually facing a chronic labor shortage. Although unemployment is almost non-existent in the Czech Republic, there is a large gap between wage growth and labor productivity growth, as well as low economic value added, which not only puts cost pressure on employers, weakens economic growth potential, but also affects state revenues. The reality is that the Czech Republic's public debt is growing, the fiscal burden is increasing, and the government's control over the economy is declining, and it is in a vicious circle. The 2023 pension policy reform and cuts in education and health spending have sparked a number of demonstrations. The Czech business community recently warned that the Czech Republic is caught in a "middle-income trap" and that it can only get out of it by changing its development model.

In addition, the Czech Republic is deeply involved in the German industrial division of labor and is deeply influenced by the German economy. At present, the policy of achieving a complete green transition and decarbonization has had a negative impact on the German economy, leading to a decline in people's living standards. The International Monetary Fund expects Germany to be the only G7 economy in recession. Undoubtedly, this will be a drag on the economic and social development of the Czech Republic.

In order to reverse the unfavorable situation, the Czech Government has taken a number of measures. In September, Prime Minister Fiala announced a vision for the next 10 years, with four priorities: serving the national interest, improving administration, becoming a leader in education, and strengthening strategic investment. The government proposes to focus strategic investment on nuclear energy, lithium, chips, information technology and other industries based on the development of transportation and energy infrastructure. Fiala recently promised that the socio-economic situation in the Czech Republic will begin to improve in 2024, with inflation remaining at around 3% and real wages increasing.

Government approval is sluggish

Policy stability is unpredictable

The current Czech government is governed by a five-party coalition that took office at the end of 2021. With the outbreak of the Russia-Ukraine conflict in early 2022, the current government had to shift its focus to security and the military, and in the second half of the year, it was busy with the presidency of the Council of the European Union. Although the current government was once recognized and supported by the people because of its positive actions and good image, the Russia-Ukraine conflict continues to bring multiple challenges, and the pressure of insufficient finances is gradually intensifying. At the beginning of 2023, the government has to carry out comprehensive reforms of the pension system, tax system, education, etc., which are considered "unpopular" and have a huge contradiction with the people's demands for social security and welfare systems. People complain about poor communication between the government and the public, and the ruling coalition is in a dilemma. Since 2023, due to lackluster achievements in economic and social development and improvement of people's livelihood, the support of the ruling coalition's parties and their leaders has continued to decline. A few days ago, the Fiala government had only 1/6 of the people's trust.

Some analysts attribute the current government's current predicament to the lack of a long-term strategy for sustainable development in the Czech Republic. The current political system not only contributes to long-term political instability and division, but also undermines policy continuity and long-term strategic planning. Coalition government has increased the cost of coordination, and it is difficult for the five parties to reach consensus on some policies, and it has also become more difficult for them to formulate and implement policies.

At present, the current government's four-year term has passed its halfway point, and society has a "mixed reputation" for its performance in power, especially with its solution to people's livelihood problems. It is unclear whether the current government will be able to effectively implement its long-term strategic plan in the next two years, and whether it will be able to win the 2025 parliamentary elections to maintain the stability and continuity of its policies and achieve its governing goals.

Values-based diplomacy

Do not give up on pragmatic measures

In April this year, the current Czech government revised its governing platform, announcing that its foreign policy is rooted in the transatlantic partnership and practicing "European values", and based on historical experience and practical considerations, it has put forward a tough policy towards Russia, including assisting Ukraine, participating in Ukraine's post-war reconstruction, and promoting Ukraine's accession to the European Union.

After the outbreak of the Russian-Ukrainian conflict, the Czech Republic immediately provided comprehensive military and material assistance to Ukraine. Recently, the EU summit adopted a decision to open negotiations on Ukraine's accession to the EU, and the Czech Republic voted in favor. However, the Czech government's deep involvement in the Russia-Ukraine conflict has also drawn criticism from some members of the public and opposition camps.

The Czech Republic took over the Visegrad Group Presidency for a one-year term in the second half of 2023. The organization is composed of the Czech Republic, Slovakia, Poland and Hungary, and is one of the most important regional cooperation organizations in Central Europe. Differences among member states are intensifying due to differing views on the Russia-Ukraine conflict and geopolitical trends. President Pavel believes that the Visegrad bloc still lacks consensus on fundamental issues and is unable to play an effective role. The Czech Ministry of Foreign Affairs holds a similar view, while the Czech Prime Minister and Government remain interested in multi-level cooperation with the organization.

In terms of relations with China, on November 2, Czech National Security Adviser Boyar visited China. He said that the Czech side is willing to promote the development of relations with China with a pragmatic attitude, and is willing to strengthen cooperation with China, carry out more exchanges, enhance mutual understanding, and lay a solid foundation for the long-term development of bilateral relations. Earlier, officials of the Czech Foreign Ministry also expressed interest in economic cooperation with China.

(Guangming Daily, Prague, December 23)

Guangming Daily (December 24, 2023 08 edition)

Source: Guangming Net-Guangming Daily