Macroeconomic development of the Czech republic in the years 1996-2004

Economic growth of the Czech Republic differed strongly in two periods: 1996-1999 and 2000-2004. While in the first period the economy was hit by the recession and the average annual rate of growth of GDP reached only 0,9 %, in the second period the growth accelerated to 3,2 %. 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 even faster than GDP. The contribution of foreign trade becomes positive in the year 2004 and mainly in 2005. Macroeconomic stability of the Czech economy improved substantially in the fields of inflation, monetary development and foreign trade. Imbalances persist in general government budget and on the current account of the balance of payment. The process of real convergence accelerated in the years 2000-2004 and was based on the growth of labour and total factor productivity. In 2004 the GDP per capita in purchasing power standards surpassed 70 % of the average level in EU-25. The comparative price level of the Czech Republic in this year reached only 53 % despite accelerated process of catching-up.