...Government incentives dating back to the 1990s, which include tax breaks for new companies and cash for creating new jobs, attracted high levels of foreign investment, boosted further after the country joined the EU in 2004. According to David Marek, chief economist at Deloitte in Prague, the nation’s unemployment rate is low for two main reasons. First, assembly plant jobs have been relatively easy to create because they are cheap and government incentives have made the Czech Republic attractive to global manufacturing companies. Second, the Czech business cycle is closely connected to the economic health of the EU. When Europe is doing well, the Czech Republic does even better, Marek says. And right now Europe is doing relatively well, praguemorning.cz writes.

But the roots of the Czechs’ recent success may store up trouble for the future. High wage growth is a pressing concern. Deloitte’s Marek says wages are rising because of labor shortages, which prevents the economy from growing even faster. Like many countries, the Czech Republic also faces an aging population. Red tape and bureaucratic obstacles make it difficult for companies to hire foreign workers to fill open positions.

Marek says the country can’t afford wages to increase faster than productivity.

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