The Czech Republic enjoyed solid economic growth between 2000 and 2007, until GDP growth rates began to drop in 2008 and reached -4.7% in 2009. Just like the majority of the EU-10 economies, the Czech economy experienced a quick bounce-back in 2010 to a GDP growth rate of 2.7%. Although GDP growth has remained positive since the recovery, the IMF projects a modest growth rate of 0.8% for 2013.
Although the Czech Republic’s banks and financial system proved resilient to the crisis compared with many countries in the region, it is still in danger because of deteriorating international conditions. The IMF reported that the Czech Republic’s slowed growth in 2011 was largely due to a loss of demand for the exports that were driving the economic growth. Prime Minister Petr Necas has suggested additional austerity measures and wants to raise the VAT as well as taxes on high-income earners in order to counteract these problems, claiming that the budget deficit could go up to 6% of GDP in 2012 if the package is not implemented. President Vaclav Klaus strongly disagrees, insisting that raising taxes during a recession would equal an “economic suicide”. Czech politics in general are characterized by this kind of difference of opinion, usually leading to further political infighting.
Despite the economic problems and political disagreements, the Czech Republic has remained in the “consolidated democracies” category as measured by Freedom House. The economic crisis has thus not imposed any direct harm to the country’s overall democratic score. However, it did contribute to major political infighting, which resulted in PM Topolanek’s loss of a vote of confidence in 2009. Despite this political infighting, the six-month Czech presidency of the European Union, which began in January 2009, was completed with reasonable success.
Once PM Topolanek’s government fell in 2009. the caretaker government of technocrat Jan Fischer was able to take some first steps towards implementing structural reforms to combat the economic crisis and these steps brought initial success. However, there was a lack of significant progress in longer-term structural reform efforts, mostly due to the failure of the country’s leaders to achieve consensus across party lines. The May 2010 parliamentary elections led to optimism that the government would start fighting corruption, but a series of controversies related to government corruption and questionable financial practices led to the resignations of six different ministers by the end of 2011. In November 2011 a poll indicated that only 22% of Czech citizens trusted the government– a number reduced from 33% in 2010. In April 2012, Necas’ party lost the parliamentary majority and vast anti-government protests took place in Prague. Necas’ political party, commonly known as ODS, barely survived a vote of confidence in July and in October, local elections indicated that a large amount of citizens support the Czech communist party, a reality that may threaten the authority of Necas and ODS.
The global economic crisis has not significantly worsened the overall level of democracy in the Czech Republic and attempts at economic improvement are being made both by the government and the financial sector. In September, the Czech National Bank cut interest rates down to 0.25%, the lowest ever, in order to kick-start the stagnant economy. However, the Czech government has not been as successful as Poland or the Baltic nations in laying the groundwork for a more robust economic recovery, and due to a large amount of political infighting, gloomy (although not disastrous) GDP predictions for 2013, and indications of low confidence in the government from Czech citizens, it is unclear what the future holds.
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