OECD ECONOMIC SURVEY OF THE CZECH REPUBLIC
04 December 2020, Prague and Paris
Advancing reforms to boost the recovery www.oecd.org/economy/czech-republic-economic-snapshot/ @OECDeconomy
@OECD
Key messages Continue to support households and businesses. Gradually shift towards facilitating resource reallocation. Improve the business environment and boost R&D investment to foster productivity growth. Raise labour-market participation of mothers with young children and improve education and training of the disadvantaged. Make local government less fragmented to deliver public services more effectively. 2
Supporting the economy to exit the crisis
3
The crisis interrupted an impressive convergence GDP per capita USD, current prices, current PPPs, OECD = 100 110
110
100
100
90
90
80
80
70
70
60
60
Czech Republic
50
CEECs
40 30
50 40
EA19
1995
1998
2001
2004
2007
2010
Note: CEECs include Hungary, Poland, Slovak Republic and Slovenia. Source: OECD Productivity database.
2013
2016
2019
30
4
The Czech Republic has experienced a strong second wave Daily COVID-19 related deaths Per million inhabitants, 7-day moving average 21
Czech Republic
18
21
OECD countries
18
15
15
12
12
9
9
6
6
3
3
0
Mar 20
Apr 20
May 20
Jun 20
Jul 20
Aug 20
Sep 20
Oct 20
Nov 20
0
Source: OECD calculations based on European Centre for Disease Prevention and Control (ECDC). 5
Strict containment measures were reintroduced The Oxford stringency index 90 80 70 60 50 40 30 20 10 0
.
Note: The aggregate stringency index produced by the Oxford Blavatnik School of Government records the strictness of containment measures.
6
The economy contracted sharply Real GDP 2019 Q4 = 100 105
2019 Q4 = 100 105 100
100
95
95
90
90
85
85
2017
2018
2019
2020
Source: OECD QNA database. 7
The economy is exposed to global shocks Vulnerability to foreign demand Share of domestic value added in foreign final demand, %, 2015 90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
COL USA AUS JPN TUR CHL NOR GRC MEX GBR NZL CAN ROU ESP ITA ISR FRA POL FIN LVA DEU KOR SWE NLD PRT LTU DNK AUT ISL BEL LUX CHE CZE EST SVN HUN SVK IRL
90
Source: OECD Trade in Value Added (TiVA) database. 8
Unemployment is rising
% of labour force 10
Unemployment rate
2010 = 100 114
Employment (right scale)
8
110
6
106
4
102
2
98
0
94
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: OECD Economic Outlook database; Czech Statistical Office. 9
Inflation remains elevated Headline CPI Y-o-y % change 4
4
3.5
3.5
3
3
2.5
2.5
2
2
1.5
1.5
1
1
0.5
0.5
0
0
2015
2016
2017
2018
2019
2020
Source: OECD Economic Outlook database. 10
There is ample fiscal space to tackle the crisis Public debt Maastricht definition, % of GDP, 2019
ITA
PRT
BEL
FRA
ESP
GBR
AUT
HUN
0
SVN
0
DEU
20 FIN
20 IRL
40
NLD
40
SVK
60
POL
60
NOR
80
LVA
80
LTU
100
SWE
100
DNK
120
CZE
120
LUX
140
EST
140
Source: OECD Economic Outlook 108 database. 11
Fiscal and monetary policies eased markedly General government financial balance
Two weeks repo rate % 2.5
% of GDP 4 2
2.0
0
1.5
-2 -4
1.0
-6
0.5
-8 -10 .
2017
2018
2019
2020
2021
2022
2017
2018
2019
2020
0.0
Note: OECD estimates and projections for the 2020-22 period. 12
The recovery is expected to be slow Real GDP 2019 Q4 = 100 105
2019 Q4 = 100 105 100
100
95
95
90
90
85
.
2019
2020
2021
2022
85
Source: OECD Economic Outlook 108 database (updated with available information as of December 1st). 13
Spending on training and job support can be increased Active Labour Market Policies spending per unemployed
% of GDP per capita, 2017
Training programmes – spending per unemployed
% of GDP per capita, 2017
70
18
60
16 14
50
12
40
10
30
8 6
20
4
10 MEX GRC AUS SVK CZE POL JPN SVN ESP USA KOR LVA HUN CAN CHL EST NLD ISR SWE PRT BEL IRL NOR CHE FRA LUX DEU FIN DNK AUT
MEX CHL LVA USA SVK CAN SVN ESP LTU AUS ISR PRT JPN IRL EST KOR POL FRA CZE NOR CHE FIN NLD BEL AUT LUX DEU SWE HUN DNK
0
2 0
Source: OECD Labour Force Statistics; OECD Key Short-Term Economic Indicators; OECD Economic Outlook database. 14
Main policy recommendations to promote economic stability ďƒ˜ If weakness persists and inflation pressures are low, further reduce interest rates and the countercyclical capital buffer. Consider undertaking asset purchases. ďƒ˜ Be ready to continue providing fiscal support until the economic recovery fully sets in. Allow for flexibility in the planned fiscal consolidation given economic conditions. ďƒ˜ Boost well-targeted active labour market policies while phasing out job retention schemes in a timely manner. 15
Addressing long-term fiscal sustainability challenges
16
Czech workers retire early Average effective age of labour-market exit, 2018 Men
.
75
70
65
60
Women
KOR JPN ISR PRT ISL USA SWE CHE TUR NOR IRL CAN OECD AUS NLD DNK GBR FIN DEU AUT HUN ITA CZE SVN POL ESP GRC BEL SVK FRA LUX
55
50
45
Note: Effective retirement age shown is for five-year period 2013-18 Source: OECD (2019), Pensions at a Glance 2019.
45
50
55
60
65
70
75 17
Ageing will exert strong pressures on public finances General government debt Maastricht definition, as a percentage of GDP
180
180
Balanced budget scenario
160
160
Impact of ageing on pension spending
140
140
Impact of ageing on total ageing-related spending
120
120
Mitigation scenario
100
100
80
80
60
60
40
40
20
20
0 2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
0 2060
Note: Scenarios consist of projections for the Economic Outlook until 2022, after which the economy is assumed to grow as projected in the OECD Long-term model. In the Balanced budget scenario, the primary balance is assumed to reach a balance in 2028 and remain at zero thereafter. The “impact of ageing on pension spending” scenario assumes that increases in pension spending are financed through deficits. The “impact of ageing on total ageing-related spending” scenario adds together the impact of ageing on pensions, health and long-term care. These scenarios are based on the 2018 Ageing Report by the European Commission combined with the .economic developments in the OECD Long-term model. The “mitigation” scenario assumes that half of the ageing-related spending is financed by increasing revenues and limiting spending increases. Source: Calculations based on the 2018 Ageing Report of the European Commission, the OECD Long-term model and OECD Economic Outlook database.
18
The tax mix could be more growth-friendly General government tax revenues % of GDP, 2018 40
40
Other taxes Taxes on goods and services
30
30
Taxes on property
20
Taxes on income, profits and capital gains of corporates Taxes on income, profits and capital gains of individuals
10 0
20
Social security contributions (SSC)
Czech Republic
10
OECD average
0
.
Source: OECD Revenue Statistics database.
19
Main policy recommendations on fiscal sustainability ďƒ˜ Continue to raise the retirement age and link it more tightly to increases in longevity. ďƒ˜ Shift taxation from labour towards real estate, consumption and environmental taxes. ďƒ˜ Reduce tax advantages for the self-employed, including by increasing the assessment base for social security contributions. 20
Restarting investment and raising productivity
21
The recovery is an opportunity to decrease energy and carbon dependency Energy intensity Primary energy supply per unit of GDP
CO2 intensity CO2 per unit of GDP 0.6
ktoe/USD (2015 PPP) 0.20
kg/USD, 2015
Czech Republic
Czech Republic
0.5
0.16
0.4
0.12
0.3 0.08
0.2
OECD
0.1 0
2000
2005
2010
2015
OECD
0.04 0.00
2000
2005
2010
2015
Source: OECD (2020), Green Growth Indicators, OECD Environment Statistics (database). 22
R&D and innovation activity is below par Business enterprise expenditure on R&D, % of GDP, 2018
Summary Innovation index Relative to EU, 2018
4.5
160
4.0
140
3.5
120
3.0
100
2.5
80
2.0
60
1.5
40
1.0
20
.
POL TUR LVA HUN SVK LTU GRC ESP ITA SVN CZE PRT EST EU FRA IRL ISR ISL AUT DEU NOR GBR BEL LUX NLD DNK FIN SWE CHE
0.0
MEX CHL LVA LTU SVK TUR GRC EST LUX PRT ESP NZL CAN POL IRL ITA AUS NOR HUN GBR CZE ISL FRA SVN NLD OECD FIN DNK BEL USA DEU AUT CHE SWE JPN KOR ISR
0.5
0
Source: OECD MSTI database; European Commission, European Innovation Scoreboard 2019. 23
SMEs invest little in R&D
100 90 80 70 60 50 40 30 20 10 0
JPN DEU USA LUX GBR KOR SWE CHE DNK FRA CZE AUT ITA GRC FIN HUN TUR SVK EST AUS SVN POL BEL NLD IRL CHL ESP PRT NOR CAN NZL LVA ISL
SME share of business R&D expenditure %, 2016
Source: OECD SME and Entrepreneurship Outlook 2019. 24
The business environment can be further improved Doing Business indicators 2020 Ease of doing business scores, from low to high, OECD average = 100 120
120
110
110
100
100
90
90
80
80
70
.
Czech Republic Dealing with Enforcing construction contracts permits
Starting a business
Protecting Paying taxes Ease of Registering minority doing property investors business
Trading across borders
OECD Getting credit
Resolving insolvency
Getting electricity
70
Source: World Bank Doing Business indicators 2020. 25
Main recommendations on productivity and investment ďƒ˜ Better target R&D support to small and young dynamic firms. ďƒ˜ Adopt the new Building Act and reduce the time and number of procedures for starting a business. ďƒ˜ Promote investment to facilitate the transition to lowemission technologies and increase energy efficiency. 26
Increasing labour market participation of mothers and building skills
27
Having children has a big effect on labour market activity of women At-work rates for women with children (aged 0-14) By age of the youngest child, %, 2018 100
100
80
80
60
60
40
40 Youngest child aged 6 to 14
20
ITA
SVK
GRC
CHL
IRL
HUN
DEU
FRA
AUT
ESP
CZE
POL
GBR
OECD
FIN
EST
BEL
LTU
LVA
CAN
LUX
USA
NLD
DNK
SWE
SVN
Youngest child aged 0 to 2 PRT
0
20 0
Source: OECD estimates. 28
Generous cash benefits and lack of childcare places discourage mothers from resuming work Public expenditure on family benefits % of GDP, 2015 and latest available year 3.0 2.5
Cash benefits and tax breaks
Services
3.0 2.5 2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
TUR KOR MEX USA ESP CHL LTU GRC ISL JPN PRT ISR POL NLD SVN LVA DNK SWE FIN CAN OECD NOR IRL CHE AUS SVK ITA DEU AUT EST NZL BEL FRA HUN CZE GBR LUX
2.0
Source: OECD Social Expenditure Database, http://www.oecd.org/social/expenditure.htm 29
Disadvantage should be better targeted in schools Likelihood of low performance among disadvantaged students Relative to non-disadvantaged students, odds ratio 4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
EST TUR LVA SVN NLD GBR FIN KOR ISL CHL CAN NOR USA JPN POL AUS GRC AUT ITA OECD NZL PRT IRL DNK SWE LTU CHE FRA MEX LUX BEL SVK DEU CZE ISR HUN
4.0
Source: OECD (2019), PISA 2018 Results (Volume II): Where All Students Can Succeed, PISA, OECD Publishing, Paris, https://doi.org/10.1787/b5fd1b8f-en.
30
Adult education should reach those that need it most Participation in formal and non-formal education and training Adult Education Survey (AES), 25-64 year-olds, %, 2016 100
100
Tertiary Upper secondary or post-secondary non-tertiary Below upper secondary
80
80
CHE
NLD
SWE
AUT
NOR
FRA
ITA
SVN
PRT
LUX
IRL
DEU
GBR
HUN
DNK
CZE
FIN
LVA
EU28
BEL
0
ESP
0
SVK
20
EST
20
TUR
40
POL
40
LTU
60
GRC
60
Source: Eurostat database. 31
Main policy recommendations on labour market participation and skills Keep expanding the supply of affordable and highquality childcare facilities. Shorten parental leave and incentivise fathers to take more of the parental leave. Better target disadvantage in the school-funding formula. Consolidate the school network to ensure quality of education in all schools and encourage small schools to cooperate and share administrative resources. 32
Better target adult education to low-skilled workers.
Enhancing administrative and fiscal decentralisation
33
The Czech Republic has the highest number of municipalities per capita in the OECD Number of municipalities per million inhabitants 2016 60
50
50
40
40
30
30
20
20
10
10
0
0
KOR GBR IRL JPN NZL DNK TUR CHL MEX NLD AUS SWE PRT ISR GRC BEL FIN EST LVA POL NOR SVN OECD CAN USA ITA DEU EU28 LUX ESP ISL AUT CHE HUN FRA SVK CZE
60
Source: OECD Subnational Government Structure and Finance database. 34
Czech municipalities are very small Size distribution % of municipalities with less than 2 000 inhabitants, 2016 100 90 80 70 60 50 40 30 20 10 0
POL SVN OECD ITA DEU HUN SVK FRA CZE
Source: OECD Subnational Government Structure and Finance database. 35
Small size impacts the efficiency and effectiveness of local government Expenditure per capita is higher in small municipalities Average, CZK thousand, 2018 70
Small municipalities invest comparatively less per capita Median, CZK thousand, 2018 10
Municipalities with extended powers
60
8
Rest of municipalities
50 40
6
30
4
20
2
Municipal population
> 100 000
50 001 - 100 000
20 001 - 50 000
10 001 - 20 000
5 001 - 10 000
2 001 - 5 000
1 001 - 2 000
501 - 1 000
201 - 500
101 - 200
1 - 100
> 100 000
50 001 - 100 000
20 001 - 50 000
10 001 - 20 000
5 001 - 10 000
2 001 - 5 000
1 001 - 2 000
501 - 1 000
201 - 500
101 - 200
0
1 - 100
10
0
Municipal population
Source: Ministry of Finance of the Czech Republic. 36
Main policy recommendations on enhancing administrative and fiscal decentralisation Introduce financial and non-financial incentives for municipal mergers. Make inter-municipal co-operation mandatory and multi-purpose at the level of micro-regions with clearly specified tasks. Encourage self-funding of inter-municipal cooperation (from own tax sources and by member municipalities). 37
Gather information on the quality of services provided at the local level to increase understanding of best practices and allow the use of benchmarking.
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