Czech purchasing power rising with GDP growth, firming koruna

The Czech economy has been outperforming its central European neighbours and is set to reach something of a psychological milestone next year, when GDP per capita is on track to reach 85 percent of the Eurozone average. In more tangible terms, though, the average Czech is enjoying greater purchasing power, and confident they can always find work.

Photo: Tomáš Adamec / Czech Radio

According to a new study on the purchasing power of 42 European countries, in terms of disposable income the Czech Republic is only just above average, ranked 23rd, or approximately one-third below the European-wide average in 2018.

But among the former Eastern Bloc countries, the Czech Republic is ranked third overall, behind Slovenia and Estonia, having overtaken Slovakia and Lithuania this year. Czechs’ purchasing power per capita also far exceeds that of Poland and Hungary.

Steady GDP growth is not the only factor behind Czechs’ increasing purchasing power. It also stems from the Czech crown strengthening against the Euro since the central bank stopped its currency intervention last April. But with rising purchasing power, also come rising prices in some areas, notes Pavel Mikoška, Vice President of the Czech Republic's Trade and Tourism Union.

“Basically, this reflects the situation on the market, where business owners and producers sense there is purchasing power, and so they can in one way or another offset their own costs. In the past, businesses had to compensate for the unfavourable exchange rate on imports. … Now they sense that they can move the other direction.”

Adjusted for inflation, the average gross monthly wage in the Czech Republic increased 6.2 percent year-on-year in the second quarter to just under 32,000 crowns,. Meanwhile, the Czech unemployment rate is at its lowest in 22 years, at below 3 percent, and many – especially university graduates – have never had it easier finding work, says Richard Hindls, rector of the University of Economics in Prague.

“In fact, we have reached the threshold of full employment. More or less anyone who wants to work can find employment. This is hardly a common occurrence, and the Czech Republic is perhaps best in this regard in Europe. But of course external conditions can greatly impact the Czech economy, which is small and greatly dependent upon developments in other countries and the price of raw materials.”

Photo: Štěpánka Budková

External threats aside, many Czech consumers are less concerned about saving for a rainy day, and so willing to pay more for quality fast-moving consumer goods. But the picture is far less rosy for Czechs when it comes to what is typically the biggest purchase in a person’s lifetime – that of a home.

Property prices in the Czech Republic are the highest in the EU compared to wages, with the price of a small family flat exceeding 11 times the average annual income.

That said, data released by the Ministry of Finance on Monday show the relative economic level of the Czech Republic should gradually reach 85 percent of the average of euro zone countries in 2019 – and Czechs’ comparative purchasing power should rise from 66 percent now to 71 percent next year.