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New OECD Economic Survey of Czechia

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. 

Praha

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.

The OECD Economic Survey of the Czech Republic was released earlier this week. Each edition of this biennial publication surveys the major challenges faced by the country, evaluates the short-term outlook, and makes specific policy recommendations. This edition features special sections on improving education and skills, boosting innovation and business dynamism and transitioning to net-zero. The survey states that 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.

“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. “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.”
 

Key messages of the OECD Economic Survey of Czechia 2025: 

  • Enhancing spending efficiency and addressing rising ageing costs are key to ensure long-run fiscal sustainability.
  • Revitalising productivity growth and convergence requires boosting Czechia’s innovation capacity and business dynamism.
  • Acelerating policy action to replace coal and reduce the energy and emission-intensity of the buildings sector is needed to meet Czechia’s climate targets.
  • Addressing inequalities in education, increasing the quality and efficiency of schooling, and expanding possibilities to reskill and upskill workers throughout their careers are key to tackle skill shortages and provide equal opportunities for all.

More detailed recommendations for Czech economy, innovations, green transition and for the labour market as presented in the Outlook:

1. Ensuring robust growth and fiscal sustainability
The economy returned to growth and the outlook is improving, although risks are elevated. The restrictiveness of monetary policy has been gradually eased as inflation has fallen close to the target but underlying inflationary pressures persist. Fiscal consolidation has appropriately started and should continue in the medium term in line with the national and EU fiscal rules to rebuild fiscal buffers and prepare for long-term spending pressures. Increasing spending efficiency, including by building capacity to regularly conduct spending reviews and by strengthening incentives for overly small municipalities to cooperate or merge, implementing recent pension reforms, and revising family benefits to reduce disincentives for mothers with young children to return to the workplace, can help to improve fiscal sustainability.

2. Boosting innovation and business dynamism
Czechia’s growth has slowed down since the global financial crisis and has stalled since the pandemic, leaving a sizeable productivity gap with the OECD average. Boosting the innovation capacity and business dynamism can help revitalise productivity growth. Improving the innovation ecosystem requires better targeting business support for R&D, developing capital markets and strengthening linkages between businesses and science. The business environment can be strengthened by improving regulations to facilitate the entry and scaling up of productive firms, and the exit of unproductive firms as well as further enhancing the anti-corruption framework.

3. Transitioning to net-zero
Czechia has significantly reduced greenhouse gas (GHG) emissions over the past three decades, but the emissions- and energy-intensity of the economy remain high. Accelerated policy action is needed to put the economy on a path to net-zero emissions. This requires a cost-effective policy package that includes more consistent pricing of carbon, facilitating the deployment of renewable energy and strengthening incentives to increase the share of low- or zero-emission vehicles and to shift transport off the road. Implementing stricter regulation and targeted financial assistance would help incentivise housing renovation to reduce the high emission and energy intensity of the building stock. Measures to alleviate the impact of the net-zero transition on vulnerable communities and to adapt to climate change are also required.

4. Improving education and skills
School outcomes are strong, but students’ performance has been declining among the most vulnerable. Moreover, high skills shortages and mismatches pose a threat to productivity growth. Improving skills requires boosting educational outcomes for all students and expanding opportunities to reskill and upskill workers throughout their careers. There is scope to improve educational outcomes by expanding capacity and participation to high-quality affordable early childhood education and care, especially for disadvantaged children. Offering more individualised support to pupils with special education needs, delaying school tracking and reducing disparities in quality across educational paths are crucial to reduce inequality in education. Improving teachers’ working conditions and increasing the efficiency of the school network would enhance the quality of education. Enhancing the labour market relevance of vocational education programmes and promoting work-based learning, while expanding tertiary education attainment and boosting participation in adult learning for the low-skilled would improve the alignment of skills with labour market needs.

The Confederation of Industry of the Czech Republic is a member of Business at OECD (BIAC). The OECD document, to which we have also contributed, can serve as one of the bases for discussions on Czech economic priorities.