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2006 OECD Economic Surveys: Czech Republic 2006

image of OECD Economic Surveys: Czech Republic 2006

This 2006 edition of OECD's periodic review of the Czech economy finds that economic growth prospects have improved and that monetary conditions are good, but that much work is needed in public spending reform, improving the labour market, and enhancing the business environment. Special chapters examine pension reform, fiscal sustainability of state and municipal governments, modernising the education system, and boosting innovation.

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Assessment and recommendations

Between 2002 and 2005, annual growth in GDP per capita has risen from a little under 2% to 6%, and shifted above the average for other east-European OECD countries. Past reforms and accession to the European Union are contributing to further expansion of exportdriven manufacturing, backed by foreign-direct investment. Indeed, the trade balance has become positive. Nevertheless, catch-up with more advanced economies is some way off and maintaining this performance will require continued reform. Entry to the euro area is aimed for in 2010 and this may provide an additional fillip to growth. In addition, the current government has published a blueprint for reform, the Economic Growth Strategy. It contains a large number of detailed proposals, many of which echo past and present OECD recommendations, and should be used as a catalyst for change. The most important measures have to be taken in fiscal policy; it is very important that the next government faces up to the considerable challenge of putting deficits on a sustainable track through public-spending reform. Policy will also have to push ahead in making improvements to the labour market, including the skills base, and with measures to enhance the business environment.

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