The Organization for Economic Cooperation and Development (OECD) expects the Czech economic recovery to be slow and to reach pre-crisis levels by the end of 2022, stated the Secretary-General Ángel Gurría during a regular presentation evaluating the Czech economy.
In early December, the OECD said that the Czech economy would fall by 6.8 percent this year due to the spread of coronavirus. Next year, gross domestic product (GDP) should increase by 1.5 percent, and in 2022 its growth should accelerate to 3.3 percent.
In the September forecast, the Czech Ministry of Finance expected economic growth of 3.9 percent next year. In the November forecast, the Czech National Bank expects the economy to decline by 7.2 percent this year and to grow by 1.7 percent next year. According to the National Bank, the performance of the Czech economy will not reach the pre-crisis level even at the end of 2022.
The OECD expects both unemployment and the number of failing companies to rise gradually. The government should thus continue to support the economy until its full recovery.
“The crisis has interrupted the period of strong economic growth in the Czech Republic and approaching the average level of OECD countries. After effectively suppressing the first wave of the pandemic, the country is now struggling with the effects of the second wave. Uncertainty is now high and the return to economic growth will be slow,“ said Gurría.
He also supported the government’s current efforts to accelerate economic recovery by proposing tax cuts, the abolition of super-gross wages, and the introduction of income tax rates of 15 and 23 percent.
“Do not make the same mistake as in the 2008 crisis, when you started consolidating public finances too soon. The Czech Republic has a strong position and stands better than many other OECD countries. Talk about consolidation, but make sure it only starts when the economic recovery is secured,” he stressed, noting that the effects of the first months of the pandemic were ten times worse than the effects of the crisis in 2008.
We can afford budget expansion, says, Czech finance minister
Minister of Finance Alena Schillerová pointed out that the Czech Republic can afford budget expansion thanks to the previous reduction in debt.
“Nevertheless, I must repel the attacks accusing the government of the disruption of public finances. I am pleased that the OECD recommendations support the approach that I, the Prime Minister, and the entire government are promoting,“ she said.
As part of the regular assessment of the Czech economy, the OECD recommended shifting income taxation to real estate taxes, excise and environmental taxes, and reducing tax benefits for entrepreneurs.
In the area of investment support, the OECD recommends better targeting research and development support to small and young fast-growing companies, adopting a new building code, reducing the time and number of steps needed to start a business, supporting investments facilitating the transition to low-emission technologies, and increasing energy efficiency.
“We reflect on the remarks. The OECD was the first to recommend massive support for the economy. And we were well-prepared for this from a financial point of view,“ said Prime Minister Andrej Babiš at the press conference.
In the area of pensions, the OECD recommends continuing to increase the retirement age and linking it more firmly to increasing life expectancy.