Ex-central bank chief: Czechia had a good 2019 but needs to build infrastructure, housing

Illustrative photo: Gerd Altmann, Pixabay / CC0

The Czech economy grew at a healthy pace, the country’s unemployment rate is at the lowest in decades, wage growth remained solid and inflation stayed under control. By most measures, 2019 was a good year for the country, former central bank governor Miroslav Singer says. But he cautions that while the Czech Republic has caught with some Western European countries in purchasing power, it has neglected investment in infrastructure for the long haul.

Miroslav Singer, photo: Filip Jandoure, Czech Radio
Miroslav Singer, now chief economist for Generali CEE Holding, is bullish on the country’s near-term future, despite a looming recession in neighbouring Germany, its main trading partner.

“I think 2019 was a very good year. We have the lowest unemployment rate of the industrialised countries, in the whole OECD. Economic growth was solid. It’s hard to find something negative about it.”

Domestic consumption on the back of rising wages should keep the Czech economy humming, he says – barring a bitter US-China trade war or other major external event.

But while the Czech Republic is the most industrialised in Central Europe and has in terms of purchasing power caught up with some Western European countries, such as Spain, this is also because that region has been stagnating.

Illustrative photo: Gerd Altmann, Pixabay / CC0
In real terms, Czech purchasing power has risen two and a half times since 1989 as the country became a standard market economy – albeit one heavily oriented toward manufacturing and the auto industry.

The key to further closing the gap in the long term, says ex-Czech National Bank governor Miroslav Singer, is to make long-overdue investments in infrastructure.

“I remember when making presentations for foreign investors some 20 years ago, we could say the Czech Republic’s advantage was we had the best infrastructure of the new market economies. Today, we absolutely cannot say this. The Slovaks and Poles have overtaken us.

“We are suffering from a system that is building infrastructure at a desperately slow pace. We enjoyed 10 years with a minimum interest rate, and we were worried about building with less corruption. We completely missed the opportunity.”

Photo: Michael Gaida, Pixabay / CC0
Singer points out that it faster to travel from Prague to many Czech cities by train rather than by car not because a high-speed railway is in place but because of chronic gridlock.

A more pressing pocketbook issue is the shortage of affordable housing. In the past five years, prices of new apartments in Prague have gone up by 80 percent while rents have climbed by 42 percent. The main problem is that new apartments are not being built in sufficient numbers, Singer said.

In 2019, the average Czech spent over a quarter of their income on housing, with rents rising faster than wages. The cost of housing and food, the second biggest expense for most families, increased by more than seven percent.