Download Czech Republic`s experience

EU Hidden Triggers
(Czech Republic’s experience)
AL EŠ ROD
03. 06. 2016
BRATISLAVA, SK
Facts and basic information
Czech Republic
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Established: 1993
NATO membership: 1999
EU membership: 2004
Area (total): 78 866 sq. km
Inhabitants: 10 553 843
GDP per capita (EUR): 15 600
GDP per capita (PPS): 23 200
Unemployment rate (total): 4.1 %
Unemployment rate (>25 years): 9.5 %
Public debt / GDP ratio: 41.1 %
Expectations…
Less
corruption
More
competences
EU funds
Economic
convergence
Easy
travelling
EU
Rule
of Law
Access to
labor market
International
status
Geopolitical
stability
FDIs
… and reality
European Union membership has decreased economic costs of having “non-member” status
European Union membership has increased economic costs related to excessive regulation
European Union membership has brought opportunity to comment on international topics
European Union membership has cut down sovereignty of the national economic policy
… EU membership has many pros and many cons. These are changing in time.
EU membership is not universal cure for all national diseases.
“What do you do for yourself, that you may have!”
1. Economic performance
All Czechs were expecting a rapid economic convergence to the level of Western Europe.
In current market prices, the gap between EU15 and Czech Republic is even higher today
◦ CZE convergence gap 1995: + 14,300 Euro
◦ CZE convergence gap 2015: + 17,500 Euro
In Purchase Power Standard, the convergence of all V4 states is noticeable
◦ CZE convergence gap 1995: 64 % level of EU 15
◦ CZE convergence gap 2014: 78 % level of EU 15
◦ Progress of Slovakia, Poland and Hungary is even more significant
Data shows a ratio of people at risk of poverty has not been increasing
◦ Czech Republic, Slovakia and Poland X Hungary
Gross Domestic Product per capita (1995 - 2015)
35 000
33 300
30 700
30 000
Euro per capita (annual)
25 000
20 000
15 600
15 000
10 000
5 000
Average: + 8,93 %
Average: + 4,98 %
0
1995
1996
1997
1998
1999
2000
2001
2002
EU 15
2003
2004
2005
Czech Republic
2006
2007
Euro area
2008
2009
2010
2011
2012
2013
2014
2015
Economic convergency - GDP in PPS (1995 - 2014)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
90%
80%
% copmared to EU 15
74%
69%
70%
65%
62%
64%
64%
64%
57%
54%
55%
52%
40%
42%
40%
45%
46%
55%
52%
50%
44%
50%
55%
68%
40%
40%
41%
40%
40%
1997
1998
1999
2000
2001
59%
60%
59%
61%
61%
2012
2013
62%
62%
53%
49%
47%
43%
44%
58%
61%
56%
55%
46%
44%
71%
59%
48%
46%
69%
78%
64%
54%
44%
43%
66%
62%
60%
50%
75%
71%
60%
43%
75%
74%
66%
63%
43%
75%
68%
67%
65%
70%
73%
76%
41%
42%
43%
44%
44%
2004
2005
2006
38%
36%
30%
1995
1996
EU 15
2002
2003
Czech Republic
Slovakia
2007
Poland
2008
Hungary
2009
2010
2011
2014
People at risk of poverty or social exclusion (2005 - 2014)
47,5
45,0
42,5
40,0
37,5
% of total population
35,0
32,5
31,8
30,0
27,5
25,0
24,7
23,3
22,5
20,0
18,4
17,5
15,0
14,8
12,5
10,0
2005
2006
2007
2008
Czech Republic
2009
EU 15
2010
Slovakia
2011
Poland
Hungary
2012
2013
2014
2. Labor market
The situation on labor market is determined especially by domestic economic factors (but also
driven by demand for semi-finished products from abroad).
Mobility of labor: Due to communism experience, Czechs have very low preferences to do so
(persistent political barriers on international labor market do not matter here).
The Czech economy has recently the lowest unemployment rate within the EU states and
reasonable unemployment rate of people under 25 years (industry + services).
The issue is a structure of the Czech economy – many firms uses a comparative advantage of
lower wages as a key input in their business
◦ Czech Republic should not be place for automated series production or fitting area for R&D ideas which
were developed abroad
◦ Czech Republic should be an incubator for startups, research and development, joint ventures between
universities and private sector, etc.
0,0
Czech Republic
Euro area
EU 28
10,0
2016M04
2015M12
2015M08
2015M04
2014M09
2014M05
2014M01
2013M09
2013M05
2013M01
2012M09
2012M05
2012M01
2011M09
2011M05
2011M01
2010M09
2010M05
2010M01
2009M09
2009M05
2009M01
2008M09
2008M05
2008M01
2007M09
2007M05
2007M01
2006M09
2006M05
2006M01
2005M09
2005M05
2005M01
2004M09
2004M05
2004M01
2003M09
2003M05
2003M01
2002M09
2002M05
2002M01
2001M09
2001M05
2001M01
2000M09
2000M05
2000M01
%
Umeployment rate (01.2000 - 04.2016)
14,0
12,0
10,2
8,0
8,7
6,0
4,0
4,1
2,0
0,0
Czech Republic
Euro area
EU28
20,0
2016M01
2015M05
2015M09
2015M01
2014M09
2014M05
2014M01
2013M09
2013M05
2013M01
2012M09
2012M05
2012M01
2011M09
2011M05
2010M09
2011M01
2010M05
2010M01
2009M09
2009M05
2009M01
2008M09
2008M05
2008M01
2007M09
2007M05
2007M01
2006M09
2006M05
2005M09
2006M01
2005M05
2005M01
2004M09
2004M05
2004M01
2003M09
2003M05
2003M01
2002M09
2002M05
2002M01
2001M09
2001M01
2001M05
2000M09
2000M05
2000M01
%
Unemployment rate - people younger than 25 years (01.2001 - 04.2016)
30,0
25,0
21,1
18,8
15,0
10,0
9,5
5,0
3. Fiscal situation
Although the fiscal situation is not crucial question nowadays, several issues should be discussed
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◦
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◦
Government expenditures continuously increase!
Gross debt continuously increases!
Annual fiscal balances do not follow economic cycle!
Positive development of tax quota is driven rather by GDP than by systematic decrease of taxation level!
Growing competition among political parties motivates political subjects to political (fiscal) populism!
Consolidated gross debt as a percentage of GDP (1995 - 2015)
100,0
90,7
90,0
80,0
75,3
70,0
% of GDP
60,0
52,9
51,3
50,0
41,1
40,0
30,0
20,0
10,0
0,0
1995
1996
1997
1998
1999
2000
2001
Euro area
2002
2003
2004
Czech Republic
2005
Poland
2006
2007
Slovakia
2008
2009
Hungary
2010
2011
2012
2013
2014
2015
Economic cycle and fiscal policy in the Czech Republic (1993 - 2015)
8
6,9
6,4
6,2
5,5
6
4,9
4,3
4,3
4,2
3,6
4
3,1
2,7
2,4
2,3
2,0
2,0
2
1,4
1,0
%
1,6
0,8
0
-0,3
0,5
0,1
-0,7
-0,5
-0,1
-0,5
-0,9
-0,8
-1,4
-2
-1,3
-1,4
-1,7
-1,9
-1,7
-1,7
-2,6
-2,0
-2,5
-2,8
-3,1
-1,8
-4
-3,5
-3,9
-4,0
-4,9
-4,8
-6
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Real GDP growth (y/y %)
2004
2005
2006
2007
2008
Fiscal surplus/deficit (% GDP)
2009
2010
2011
2012
2013
2014
2015
Economic cycle and fiscal policy in the Czech Republic (1993 - 2015)
8
6,9
6,4
6,2
5,5
6
4,9
4,3
4,3
4,2
3,6
4
3,1
2,7
2,4
2
2,3
1,4
1,0
1,6
-0,3
0,8
0
2,0
2,0
0,1
-0,7
0,5
-0,5
%
-0,1
-0,9
-0,8
-1,4
-2
-0,5
-1,3
-1,4
-1,9
-1,7
-1,7
-1,7
-2,6
-4
-1,8
2013
2014
-2,5
-2,8
-3,1
-2,0
-3,9
-3,5
-4,0
-4,9
-6
-4,8
-8
BUDGETARY FISCAL RULE = GDP (y/y %) minus 3 p.p.
-10
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Real GDP growth (y/y %)
2003
2004
2005
2006
2007
Fiscal surplus/deficit (% GDP)
2008
2009
MODEL
2010
2011
2012
2015
Political cycle in the Czech Republic - government expenditures (1995 - 2013)
6,0
5,0
Gap YEAR vs. ELECTION PERIOD AVERAGE
4,0
3,0
2,0
1,0
0,0
-1,0
-2,0
-3,0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Political cycle in Slovakia - government expenditures (1995 - 2014)
6,0
5,0
YEAR vs. EELECTION PERIOD AVERAGE
4,0
3,0
2,0
1,0
0,0
-1,0
-2,0
-3,0
-4,0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Political cycle in Hungary - government expenditures (1994 - 2014)
4,0
3,0
YEAR vs. ELECTION PERIOD AVERAGE
2,0
1,0
0,0
-1,0
-2,0
-3,0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Political cycle in Poland - government expenditures (1995 - 2015)
3,0
2,5
2,0
YEAR vs. ELECTION PERIOD AVERAGE
1,5
1,0
0,5
0,0
-0,5
-1,0
-1,5
-2,0
-2,5
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Recommendations (9)
1.
2.
3.
4.
5.
6.
7.
8.
9.
A country should follow own comparative economic advantages.
A country should use as many opportunities stemming from international cooperation as possible,
but the core of economic, political and social issues will always remain on the country itself.
A country should use EU funds as a complement, not substitute of own economic activity.
A country should project own interests and advocate them ex-ante; ex-post advocating is not
feasible.
A country should fight against rational ignorance of voters, the Alfa and the Omega of all
problems related to public choice
A country should invest as much effort into building “knowledge economy” as possible.
A country should vary about frequent legislative changes, but focus on reforms with broad
political consensus and support.
A country should smartly work with educational system (diversification, undergraduates, inflation
of university degrees, realistic job requirements at public sector, etc.)
A country should support the only factor systematically generating wealth: ECONOMIC FREEDOM.
Thank you for your attention.
Ing. Aleš Rod, Ph.D.
Research Director
CETA – Centrum ekonomických a tržních analýz
Jungmannova 26/15
110 00 Praha
Česká republika
[email protected]
+420 608 939 645
www.eceta.cz