The Czech economy after its entry into European union

Abstract

Economic growth of the Czech Republic differed strongly in two periods: 2001-2003 and 2004-2006. While in the first period the average annual rate of growth of GDP reached only 2,7%, in the second period the growth accelerated to 5,7%. The economic growth measured by the indicators of real income (namely of real gross domestic income) was faster. This was caused by positive contribution of the terms of trade. On the supply side the main contributing factors were labour and total factor productivity. On the demand side the growth was pulled by domestic demand which grew in the period 2001-2003 even faster than GDP. The contribution of foreign trade becomes positive in the years 2004-2006 with very strong contribution in the year 2005. Macroeconomic stability of the Czech economy improved substantially in the field of foreign trade. The trade balance becomes positive from the year 2004 and growing imbalance persists in the balance of income. The negative gap between savings and investments is caused mainly by households and general government. The process of real convergence accelerated in the years 2000-2006 and was based on the growth of labour and total factor productivity. In 2006 the GDP per capita in purchasing power standards reached almost 80% of the average level in EU-27. The comparative price level of the Czech Republic in this year reached only 61% despite accelerated process of catching-up.