Czechia's living standards have risen sharply over the three decades since joining the OECD, as a result of its openness to trade and investment, stable institutional framework and well-educated population. Policy should now focus on ensuring fiscal sustainability in light of an ageing population while revitalising productivity growth, according to a new OECD report.
The latest OECD Economic Survey of Czechia says that economic growth is set to pick up in 2025 and 2026 to reach 2.1% and 2.5% respectively. Headline inflation will continue to fall to 2.3% in 2025 and at 2.0% in 2026.
Despite this positive outlook, downside risks remain. Geopolitical tensions could hike energy prices and disrupt supply chains. A more persistent slowdown among trade partners, especially in Germany, or rising trade barriers would weigh on Czechia's export-oriented economy.
"Improving educational outcomes for all students and expanding opportunities to reskill and upskill workers as well as boosting innovation and business dynamism will be key to reinvigorating Czechia's economic growth," OECD Secretary-General Mathias Cormann said, presenting the Survey in Prague alongside Czechia's Prime Minister Petr Fiala. "Fiscal consolidation should continue in the medium-term to rebuild fiscal buffers and prepare for long-term spending pressures, including population ageing and the green transition."
Reforms have been enacted to improve the sustainability of the pension system and should be fully implemented. Linking the statutory pension age to life expectancy would further dampen expenditure growth. Revising family benefits by shortening long parental leave and shifting from family cash benefits towards affordable, high-quality childcare, would encourage mothers with young children to return to the workplace.
Productivity growth has stalled since the pandemic, leaving a sizeable productivity gap with the OECD average. Better targeting business support for R&D to young and small firms and further developing capital markets would help overcome financing constraints.
Strengthening the ecosystem for start-ups, improving product market regulations and streamlining insolvency procedures would boost business dynamism and facilitate the entry and scaling up of productive and innovative firms.
School outcomes are strong overall but disparities in education are high. Expanding affordable, high-quality childcare capacity would boost children's future educational outcomes, particularly for children from vulnerable backgrounds, providing equal opportunities for all. Improving teachers' working conditions, including by promoting a greater variety of career paths, can help to attract and retain high-quality teachers.
Skill shortages and mismatches are severe. Reforming the vocational education and training system would help better align the skills of graduates with labour market needs. Increasing efforts to enhance tertiary education attainment and expanding opportunities for reskilling and upskilling of adult workers would help make the workforce more adaptable to changing skill needs.
Transitioning to net-zero emissions will require a cost-effective mitigation policy package together with measures to alleviate the impact on vulnerable communities and strengthen the climate adaptation framework.
Effective carbon prices are too low in sectors outside the EU emission trading system to meet climate targets. The planned phasing out of coal from the energy mix by 2033 is essential to reach net-zero emissions and will require accelerating the deployment of renewables. Stronger incentives for housing renovations are needed to reduce the energy and emission intensity of the building sector.
