2010 OECD Economic Surveys: Czech Republic 2010

image of OECD Economic Surveys: Czech Republic 2010

OECD's periodic survey of the Czech economy. This 2010 edition includes chapters covering the challenge of fiscal consolidation after the crisis, pro-growth tax and benefit reform, and improving the business environment. The survey finds that the Czech economy was severely affected by the global downturn, owing to its high degree of openness and integration in global production chains. The fiscal position was also hit hard, prompting a rapid shift in policy from stimulus to consolidation.  The medium-term challenges facing the country are principally concerned with creating conditions of rapid convergence with advanced OECD economies by restoring the sustainability of public finances and improving the business environment.



Assessment and recommendations

After several years of growth averaging close to 6% per annum, the economy slowed markedly in 2008, entering a sharp recession in the fourth quarter. Real GDP is projected to have fallen by 4.3% in 2009. This reflected the collapse of world trade that followed the onset of the global financial crisis. The economy’s integration in international supply chains, particularly its specialisation in the export of consumer durables and capital goods, made it vulnerable to such a global trade shock. The trade collapse quickly triggered a contraction in domestic demand, especially fixed investment. Private consumption growth turned negative in the third quarter of 2009, as households responded to rising unemployment and a sharp slowdown in wage growth. On the production side, most major sectors contracted, with tradables suffering the most. Manufacturing alone accounted for around half the total drop in gross value added, and service sectors linked to the cycle in manufacturing, like trade and transport, were also hit hard.


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