The Continued Economic Struggle in the Czech Republic

The Czech Republic continues to face an economic struggle, with wages dipping despite an increase in the nominal average salary at the end of last year. However, consumer prices increased at a higher rate during the fourth quarter of 2023, diminishing wages’ real value. This marks the ninth consecutive quarter of wage decrease in real terms. According to analysts, even the annual average for the last year showed a decline in real wages. The Czech Statistical Office (CSO) will release wage development data next Tuesday.

The recent data on the Gross Domestic Product (GDP) structure suggest that the wage growth in the fourth quarter will be closer to the Czech National Bank’s (CNB) forecast of 6.2% rather than the Ministry of Finance’s estimate of 8.2%. This was stated by the chief economist of the Czech Banking Association, Jakub Seidler. He added that the year-on-year volume of wages and salary growth slowed to 6.5% in the fourth quarter of 2023 after a 7.4% rise in the third quarter of the same year.

Despite the overall decline, there were sectors where wages surged significantly towards the end of the year. Real estate activities, for instance, saw a double-digit year-on-year pace. Employees in the information and communication sectors, banking and insurance, and industry also fared quite well, where wage growth exceeded seven percent. Conversely, agricultural sector workers had only a slight wage increase.

The overall average wage growth for the entire economy stood at 6.6%, according to the chief economist of Cyrrus, Vít Hradil. Nevertheless, this growth was insufficient to cover inflation, resulting in a year-on-year decrease of 0.9% in real wages.

Looking at last year, Seidler suggested that nominal wages increased by 7.5%, while Hradil estimated a 7.6% rise. An average annual inflation of 10.7% implies an absolute wage decrease of 2.8%. Consequently, real wages declined for the second consecutive year, dropping 7.5% in 2022. “In total, for the years 2022 and 2023, the purchasing power of the average wage decreased by approximately 11%,” said Martin Gürtler, analyst at Komerční bank.

Despite the current struggles, there is hope on the horizon. 2023 is predicted to witness a return to wage growth in real terms due to lower inflation. The ongoing labor shortage, compensation for the previous deep decline in households’ purchasing power, and the favorable financial position of businesses are expected to contribute to the maintenance of higher nominal wage growth.