This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.

Russia’s war of aggression against Ukraine has derailed the Czech Republic’s post-pandemic recovery and further disrupted the impressive catch-up with OECD average incomes seen in the previous two decades. Steep rises in energy and commodity prices and disruptions in gas and oil imports from Russia triggered a cost-of-living crisis with a risk of broader energy shortages. Lower global growth, constraints in global supply chains and higher uncertainty have dampened activity.

Steep rises in energy and commodity prices and disruptions in gas and oil markets linked to Russia’s aggression in Ukraine triggered a cost-of-living crisis and created a risk of energy shortages. Lower global growth, supply chain bottlenecks and higher uncertainty dampened activity and economic prospects. Monetary policy has been tightened to counter inflationary pressures and should remain tight. Supportive fiscal policy helped preserve jobs and incomes but has weakened a strong fiscal position. Pressures linked to population ageing call for structural measures to improve fiscal sustainability. The labour market has performed well but faces chronic labour and skills shortages. Making employment easier for mothers can help in this regard. Raising skills would boost productivity, which still lags behind the OECD average. The Czech economy remains highly energy intensive, relies heavily on coal and records high greenhouse gas emissions. The current energy crisis is an opportunity to strengthen the resolve to reach climate commitments.

The Czech economy is very carbon-intensive and has among the highest greenhouse gas emissions per unit of GDP in the OECD. Getting on the path towards net zero will require rapid emission reductions over the coming decades. Coal still makes up close to one third of the energy supply and the government has pledged to phase it out by 2033, which will require a swift expansion in the use of renewable energy sources as well as increased energy efficiency. This can be achieved by adopting a comprehensive policy package that includes widely applied carbon pricing, incentives to raise energy efficiency, spending on renewable energy and cutting red tape hindering green investments. Compensating policies and adjustment support will be essential to mitigate the socio-economic impacts of climate policies and to increase public support. Active labour market policies including higher spending on re-training for the unemployed is key to facilitate the green transition.