The Economist ranks Czechia among world’s leading economies in 2025

Czechia ranked as the world’s sixth-best performing economy this year. Let’s start with some factors you think contributed to the improvement compared to last year’s 18th place.

“Yeah, so this significant jump was driven chiefly by the stellar performance of the Czech stock market. The Prague Stock Market Index has jumped by over 47% as of now, which overshadows the performance of Wall Street at around 14%. Even Asian markets like China grew by 25%. The European stock market grew by 17%. So, out of the five factors being considered, this was certainly the most significant contribution.

“The remaining factors, however, also bode well for the Czech Republic. I’d like to point out, especially, the 2.5% growth estimated for 2025, which is more than twice the pace of neighboring Slovakia. Then there’s the record-low, continuing low unemployment at 4.5%, and the success of the Czech National Bank in fighting inflation, where the average inflation is projected at 2.5%, with core inflation at just 1.4%. Exactly. I’d also like to point out the Czech National Bank’s target. So overall, it’s a well-deserved sixth place or ranking among the 10 best-performing developed economies out of the 36 ranked.

“But as I mentioned, the stellar performance of the Czech stock market was the major contribution. Some could argue that the liquidity of the Czech market is not as good as, for example, the liquidity in the Warsaw or other markets in the region, but nevertheless, that does not factor into this ranking.”

And in comparison to, let’s say, central and eastern Europe, it outperformed countries like Germany and Luxembourg. Could you point to some specific policies or economic strategies that contributed to Czechia’s success in this context? Also, the Czech Republic is very reliant on Germany in manufacturing, and Germany hasn’t been performing that well in this regard. So how do you think about that?

“Yeah. Well, let’s keep in mind, and this holds not only for the Czech Republic but also for the rest of the Visegrad 4, especially the trio that is very strong in automotive (Czechia, Slovakia, and Hungary) that the negative impact of the US trade war or the imposition of tariffs by the American president, announced at the beginning of April, but the trade deal with the European Union wasn’t clinched until the end of July. We only started seeing the notable direct and indirect impact of these US tariffs on exports, particularly in the most sensitive automotive industry, only in the second half, especially in the third and fourth quarters. So the jury is still out on the extent to which this new reality, in terms of the trade war with the US, will impact the dominant automotive industry.

“But yes, the malaise in Germany is continuing. One should not forget that the relative levels of economic development are significantly higher. So Czechia still benefits from this convergence play, as well as from the favorable environment for indirect investment inflows and faster growth in productivity. That explains why, relatively logically, a central European economy like Czechia can still outperform larger, more developed economies like Germany.

“Nevertheless, one should be reminded that Czechia still faces some persistent issues, which might come to the fore in the upcoming year. This includes the manufacturing-heavy industrial base, relatively lower value added, high energy costs, and questions about public and private investment performance. While the low unemployment rate (4.6%) is seen as favorable, it also indicates a tight labor supply, which could cause challenges. This is a very important issue when it comes to growth.

“But this tight labor market, along with the demographic crisis, is coinciding with the strong adoption of artificial intelligence, which many argue could contribute to higher labor productivity and alleviate some of these challenges stemming from the tight labor supply. Then, one should not forget housing affordability as another issue that might influence the mobility of the labor force, especially if the worst-case scenario regarding the impact of US tariffs on the automotive sector materializes.

“Housing affordability could become crucial for countries with certain economic growth, especially if there needs to be a reallocation of labor resources in response to sectoral challenges. Signals from developing markets like Germany and France imply that the major hit from the tariffs on the automotive sector is yet to be felt. The negative impact on the automotive sector is not only due to the trade war with the US but also from the rapid growth of car exports and especially the shift to electric vehicles.”

I was going to ask you about housing affordability, but you already answered my question. Just briefly, since we touched on it, AI is increasing productivity. That’s one way it’s framed, or a hopeful understanding. But some people are also projecting that AI could affect the labor market negatively, with companies hiring fewer people and becoming more productive. 

Do you think this is on the horizon for the EU or countries like the Czech Republic? Are governments thinking about this more? I didn’t hear much talk about restrictions or regulations on potentially firing, say, 10% of the workforce, as some projections suggest in the next 5 to 10 years. How do economists view this in terms of protecting worker rights and the labor market?

“My favorite metaphor concerning artificial intelligence is the ‘silent revolution,’ and indeed, this is a significant revolution that will bring, I dare say, epochal changes to the way we work and the way the economy operates. In that respect, I would compare the looming impact of AI on the labor market to the introduction of the first mechanical weaving machines. For instance, we saw the first machines at the beginning of the 19th century, which were met with resistance from the so-called Luddites—manual weaving workers who feared that machines would take their jobs. These Luddites tried to destroy the early machines, and the rest is history.

“The textile industry, and subsequently all other industries, adopted not only machines but also increased automation over the past 200 years. AI, in its first wave, will take away jobs, but most importantly, it will take away mundane, routine, non-creative jobs—those jobs where human labor is prone to making errors. Overall, it will increase productivity and free the labor force for more creative and fulfilling jobs.

“Obviously, this will not happen without friction because it will involve the reskilling of less qualified workers and investment in training and upskilling. Also, we shouldn’t forget the availability of the labor force. There are sectors in the Czech Republic where entrepreneurs are warning that, due to the influx of Ukrainian refugees forced to flee the Russian invasion, some sectors might face significant bottlenecks in labor availability, especially due to the persistently low unemployment rate.

“One should also not forget the so-called demographic crisis, the aging of the population, which will materialize in the upcoming 5 to 10 years, particularly in large economies like Germany and the Czech Republic. In this context, AI-driven productivity increases are arriving at a favorable moment, helping to fill the gap left by the shrinking labor force. But your point is valid: this fear of AI displacing jobs is sometimes compared to the dot-com bubble at the turn of the century.

“However, as with any technology, the key question when it comes to investment is how the implementation of AI affects productivity, corporate revenues, and profits. For example, large US corporations are investing heavily in AI—$150 billion in 2023, projected to rise to over $500 billion next year. The concern is whether these investments will generate proportional increases in revenues and profits.

“If we look back at the 1990s and the introduction of the internet, some initially downplayed its impact, comparing it to just a fixed-line telephone or a fax machine. But in reality, the internet brought significant changes, business opportunities, and entrepreneurial possibilities. Similarly, I’d be cautious about labeling current AI investments as comparable to the dot-com bubble, as we are still in the early stages of understanding AI’s impact. It’s not just about increasing revenue and profits from existing services, but potentially creating new entrepreneurial opportunities and value in entirely new industries.

“Regarding the labor market, while AI will eliminate many of the mundane, routine jobs, it will also open up new job opportunities and professions.”