The Czech economy, strongly linked to Germany's, and heavily dependant on the auto industry, has struggled to mirror its north-western neighbour's resilience in the face of the European crisis. Perhaps the country is out of the woods, but the outlook remains uncertain and the recovery can be described as lukewarm at best.

The second-quarter growth clocked in at 0.6 percent quarter-on-quarter, after a statistical revision knocked it down from August's estimate of 0.7 percent. This followed the first quarter's contraction of 1.3 percent, and negative results in all of 2012.

Much of the blame for the tepid recovery can be placed at the feet of the right-wing government that governed from 2010 until a corruption scandal brought it down in June of this year, some analysts say.

The government became obsessed with cutting the deficit and debt, leading to the scrapping of infrastructure projects, deferred pay rises and lay-offs of government employees and cuts in government support.

The austerity drive proved too much for the struggling economy and resulted in negative or marginal gains. Despite this, the focus on deficit reduction was not abandoned; rather the right-wing government succeeded in being more German than the Germans.

The Civic Democratic Party (ODS), the senior partner of the right-wing governing coalition that lost power earlier this year, has even turned its back on its cost-cutting record, announcing that if it won government it would focus on stimulating the economy once more.

It is, however, unlikely to regain power after seeing its support drop to the lowest levels in the party's history. The left wing is likely to take power in October, though their focus has seemed to be on increasing social support rather than Keynesian economic stimulus.

The Czech minimum wage, which had been raised consistently since the fall of communism, was also allowed to stagnate, going for six years without an increase, until the caretaker government increased it in August of this year.

The rate was increased from 8000 Czech crowns (about 400 U.S. dollars) to 8500 crowns per month. The low minimum wage has sparked great debate within the country, with some on the right arguing for a complete abolishment of the minimum wage (as in Germany), or those on the left arguing for a substantial increase.

The lack of wage growth, despite positive inflation, could be a further reason for the stagnant economy, as households have seen their expenses rise without a corresponding increase in income, cutting into disposable income or driving families into debt.

The Czech economy is mainly linked to Europe, so its fate is firmly tied to the handling of the European crisis. That being said, the lack of stimulus in the last three years could be a factor in the country's inability to mirror Germany or Poland's growth.

The state of the economy is certainly a strong factor in the upcoming Czech elections, which are likely to result in a return to social democratic government and a focus on government support for the economy.

Libertarians and free marketeers may cringe at the thought, but it is clear that the Czech people are not satisfied with the state of the economy and the focus on austerity, and the next government, whatever its colours, will hopefully listen. (1 Czech crown = 0.05 U.S. dollar)

Source from China Daily