The unveiling of an art installation in Prague is hardly be an international media event. Yet a new work by local artist David Cerny made headlines around the world, not so much for the artistic value of Mr Cerny’s work, but for the fact that the installation, uncovered days before the parliamentary election, featured a giant purple hand with a raised middle finger. The obscene gesture was widely interpreted as a message to the Czech president and, in general, the country’s political class.

Mr Cerny made his name by creating scandalous sculptures, but his latest work expresses a sentiment felt by many of his compatriots. Until August of this year, the country had been struggling with the longest recession in its history, and towards the end of 2013 its economy began shrinking again. To make matters worse, in June the government of prime minister Petr Necas collapsed amid accusations of corruption and sex scandals. The result of October's election, with no clear winner and seven parties in parliament, leaves little room for optimism.

Fragile growth

Given that the country has changed its government eight times in the past 10 years, could the Czech Republic’s unstable political scene hamper its economic development potential? According to Jan Fischer, a former prime minister and finance minister in the caretaker government formed after Mr Necas’s departure, it is not all gloom for his country. “We are finally expecting growth next year. It might be fragile, but signals from the business sector are positive and consumer sentiment is slightly better,” he says.

However, Mr Fischer points out that to keep the economy afloat, the new government has to move ahead with reforms, especially connected with public administration and higher education, as well as loosening the grip on public spending. “What we need is not just a pro-export policy, but also concrete actions, which make the country more attractive for foreign investors,” says Mr Fischer. 

An example of such 'concrete action' could be seen at the beginning of November when CzechInvest, the country’s entity in charge of promoting crossborder investments, announced calls for submissions for $300m in investment support grants, tapping into EU structural funding. 

Life after communism

The EU also proves to be handy as a guarantor of stability of the Czech institutions, despite the country's political worries, according to Erik Berglof, chief economist at the European Bank for Reconstruction and Development. “Had the country not been an EU member, the governmental changes would give [investors] much more uncertainty,” he says.  

Nevertheless, the level of crossborder investments to the Czech Republic is down, both in absolute terms and in comparison with its neighbours. Levels of FDI have been in decline since 2010, data from greenfield investment monitor fDi Markets shows, and while in 2010 and 2012 the Czech Republic was the fourth most popular destination for investments in central and eastern Europe, after the first three quarters of 2013 it ranks sixth, on a par with Serbia.

But Miroslav Singer, the governor of the Czech National Bank, says that it is too early to say that his country is at a crossroads. “When it comes to levels of FDI, we are still among the regional leaders,” says Mr Singer. And as far as the country's current political landscape is concerned, “discussions and arguments are part of every democracy”, he adds. "For the first 21 years of my life, I lived in a system with a very big stability,” he says, referring to the country’s communist past. “After that experience, I must say, I would much rather live in the world of scandals and governmental changes.”