Czechia at risk of weak growth, higher inflation - Raiffeisenbank's chief economist Helena Horska

Czechia's economy may face weak economic growth and higher inflation in years to come, compared to the pre-pandemic era, and its structural issues mainly involve a frozen job market, extreme red tape and accumulated internal debt, Raiffeisenbank (RB) chief economist Helena Horska said yesterday.

"The Czech economy is unable to kick-start internal sources of growth," Horska told journalists. The country's labour market has dried up, making it difficult for companies to increase productivity and slowing down the economic recovery,' said Horska.

Unemployment in the Czech Republic was at 3.6 percent in August, according to the Czech Employment Office. Czechia's joblessness has long been among the lowest in the EU.

Every year is weaker in terms of new jobseekers entering the labour market, and the situation is further complicated by early retirements, which add to tensions on the job market, according to Horska.

"Without managed labour migration, the current labour market situation will hardly be solved," Horska said. Czechia's long-standing low unemployment is turning into a disadvantage, complicating the arrival of foreign investors, for example, she noted.

Horska identified complex bureaucracy as another obstacle to economic growth, which contributes to the freezing of the real estate market. The country's accumulated internal debt poses yet another problem, including an unfinished motorway network, a lack of high-speed railways, and insufficient energy infrastructure in the long term, Horska said.

Czechia's economic recovery is also hampered by Czech companies' close connection to Germany, according to Horska.

In the future, the Czech Republic may not return to its pre-pandemic average growth rate of 2.5 percent a year, and inflation is likely to remain at the upper end of the Czech National Bank's (CNB) tolerance band, namely around 3 percent and well above the pre-pandemic levels, Horska said.

Moreover, the structure of the economy could cause any major speed-up of growth to trigger a new wave of inflation, Horska added.

According to the Finance Ministry's August forecast, the Czech economy will contract by 0.2 percent this year, with average inflation at 10.9 percent. The CNB said in August it expected economic growth of 0.1 percent and average inflation of 11 percent this year.

Source: Raiffeisenbank and CTK
Photo: Raiffeisenbank