CZECH REPUBLIC


A proud nation with a good sense of humour, highly educated labour force, and track record of invention (from propeller to contact lenses) and high quality products (cars, beer, glass)

Total area: 78,864 sq km (comparable to Rep. of Ireland)
Population: 10.6 million
Government type: Parliamentary democracy
Administrative division: 14 administrative regions
Capital + other major cities: Prague (1.3 million) + Brno (380,000), Ostrava (300,000)
Currency: Czech Crown (koruna, CZK)
Languages: Czech (official)
Ethnicity: Czech (90.4%), Moravian (3.7%), Slovak (1.9%), other (4%)
Religion: Rom. Catholic 10.4%, Protestant 1.1%, other 3.3%, unspecified and unspecified 34.5%, none 34.5%
President: (Mr.) Miloš ZEMAN (since 8 March 2013), reelected in 2018
Prime Minister: (Mr.) Andrej BABIS (since 6 December 2017, Prime Minister Designate)
Date of EU accession: 1 May 2004
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KEY FEATURES

  • Leader in CEE region by a combination of prosperity, stability, market size, buying power, and ease of doing business
  • Rising purchasing power with GDP per capita (PPP) highest of the new EU members
  • 2nd largest nominal GDP in Central and Eastern Europe after Slovenia
  • Strategic location in the heart of Europe – next to Germany, Poland
  • Extremely successful in attracting foreign direct investment
  • Strong manufacturing industries, excellent infrastructure
  • Regional headquarters, R&D operations, service centres
  • Educated and skilled labour force

MACROECONOMIC OVERVIEW


The Czech Republic is today considered one of the most stable and prospering countries of Central and Eastern Europe (CEE). Since 1989, it has accomplished a profound transition toward a market driven economy including privatization and restructuring of all its industry and service sectors. Only a handful of companies remain in state ownership, including some utilities, national airlines, post, and a few others. The country has attracted impressive volumes of foreign direct investments and its beautiful capital of Prague has been a most popular destination for millions of tourists every year.


The Czech economy continues to grow on the back of strong fundamentals: strong domestic demand, sustained job creation and growing tax revenues and exports. The economy had already grown above initial expectations of the IMF in 2017 at 4.3% and maintained a growth rate that exceeds both that of Eurozone and the EU as a whole in 2018 at 3.1% Growth is expected to remain robust at 3% in 2019, but moving forward it could be exposed to a risk of labour shortage and trade disruptions.


The Czech Central Bank maintained a gradually expansionary monetary policy, by raising the policy interest rate to 0.75% after deciding to remove the cap on koruna-euro exchange rate. Koruna, which was one of the strongest currencies in the world in 2017, maintained its value against major currencies throughout 2018. Czech banking system is well capitalised, liquid and profitable. Private credit growth was in line with nominal GDP growth; however, household lending is growing quickly with some households heavily indebted. Fiscal balance improved considerably in the last two years because of strong tax revenues, coupled with lower capital and social benefits spending. Government balance is expected to ease gradually and fall below 1% of GDP as of 2019. Improvement in fiscal balance, along with a negative interest-growth differential was estimated to have brought down the public debt to 33.2% in 2018, one of the lowest rates in the EU. Inflation picked up in the last two years on the back of a growth in wages, nonetheless interest rates remain close to zero. Strong exports boosted GDP growth in 2018, but reliance on international trade, exposes Czech economy to new challenges in international conjuncture.



Selected economic indicators, Czech Republic, 2012 – 2018

    2012 2013 2014 2015 2016 2017 2018
GDP
Real GDP growth
%
-0.8
-0.5
2.7
5.3
2.6
4.3
3.2
GDP at current prices
€ bn
161.43
157.74
156.67
168.47
176.56
191.55
207.77
Foreign trade
Exports
€ bn
122.96
121.26
129.32
136.55
140.44
152.20
162.84
Imports
€ bn
115.21
112.17
119.35
126.44
127.23
138.38
149.60
Balance
€ bn
7.75
9.10
9.97
10.11
13.21
13.82
13.24
Prices
CPI - average inflation rate
%
3.3
1.4
0.4
0.3
0.7
2.3
1.8
PPI - industry - average
%
2.4
1.1
1.4
-2.3
-3.2
0.8
0.7
Employment
Registered unemployment
%
7.0
7.0
6.1
5.0
4.0
2.8
3.0
Average monthly gross wage
997
964
909
970
1,020
1,120
1,207
Exchange rates
CZK/USD average
19.57
19.56
20.75
24.60
24.44
23.36
21.72
CZK/EUR average
25.15
25.98
27.53
27.28
27.03
26.33
25.63

Source: Eurostat, International Monetary Fund and Czech National Bank, 2017-2018



KEY SECTORS


The agricultural sector went through a serious crisis in the 1990s and remains highly subsidised. In 2018, it accounted for 2.19% of the country's GDP and employed 2.78% of the labour force. The main agricultural products are sugar beet, potatoes, wheat, barley and poultry.

Industry accounts for 33.5% of GDP and employs 37.4% of the labour force. Growth in performance has been accompanied by an increase in the productivity of the labour force. The automotive sector is by far the largest industry, with companies like Skoda (owned by Volkswagen). Since 2005, foreign investors such as Toyota and PSA have also started producing cars in the Czech Republic. Czech cars are also the backbone of exports, which comprise as much as 80% of GDP.

Services contribute to 54.23% of the GDP and employ nearly 60% of the active population. The tourism sector maintains its pace of sustained growth, with the number of international arrivals rising to a record high of 10.6 million in 2018 (6.7 million visitors for Prague).


Automotive:
The automotive industry, including manufacture of components, is a crucial part of the Czech economy accounting for 23% of the manufacturing output. The industry includes close to 200 component suppliers, of which most are foreign owned – via acquisitions and green-field & brown-field investments. Automobile-related manufacturing, design and R&D is one of the densest in the world with half of world’s top 50 components producers present in the Czech Republic. Besides its traditional carmaker Skoda (part of VW), the Czech Republic also hosts new plants of TPCA (Toyota/Peugeot/Citroen) and Hyundai, together producing 1 million cars per year.


Electronics and electric products
is another sector with a long tradition, currently ranging from manufacture of components to consumer electronics to avionic radars. The sector is marked by a high proportion of imported materials, components and parts for production and assembly, and a wide range of technological processes. Over 15,000 companies employ nearly 150,000 workers with various skills.


Plastics
industry is tightly connected to the automotive and electronics sectors, and as such benefited from their boom in the last few years. The plastics and rubber industry belongs among the most significant manufacturing sectors generating approximately 6.5% of total industrial output.


Engineering, machine tools & precision engineering:
Another sector in which the Czech Republic has an excellent reputation with many leading international firms undertaking R&D and engineering product development through local subsidiaries. Major investors include ABB, Parker Hannifin, Ingersoll Rand and Honeywell. According to fDi Benchmark, the quality of Czech scientific research institutions is the highest within the CEE region and is equal to that of many western countries.


Biotechnology and Life Sciences:
The Czech Republic boasts one of the most developed biotechnology sectors among new EU members with more than 500 entrepreneurial entities. The development of human and veterinary pharmaceuticals, diagnostics, fermentation technologies, and use of biotechnology in waste handling and environment protection are segments in which Czech biotech entities have been successful. The Czech government set development of new pharmaceutical treatments and diagnostics as one of the top priority areas and allocated public funding of over EUR 2.5 billion in the last decade to strengthen the sector’s research infrastructure.


Financial services:
The country has a modern competitive banking sector, now fully in the hands of leading international banks such as KBC, Societe Generale, Erste Bank or UniCredit Group. During the turmoil on the world financial markets, the local banks financed their loans from the deposits of Czech savers; the loan-to-deposit ratio of the Czech banking sector, currently standing at 78%, belongs amongst the lowest in the EU.


Shared services and R&D/technology centres:
The country has been widely recognized by multinational corporations as a primary location for regional expansion as well as for setting up their regional headquarters and has the second largest business support market in the CEE, hosting over 200 shared service centres including Accenture, ExxonMobil, Honeywell, Monster Group, Siemens, SAP, Anheuser-Busch Inbev, Johnson Controls, Covidien and many other.


Tourism:
The Czech Republic is considered as one of the most favourite destinations for tourists due to its historical heritage, spas and resorts as well as mountains. Twelve historical monuments are on the UNESCO heritage list. There are over 200 castles and chateaus, more than 40 protected historical towns, and 36 spa towns. Its capital Prague is the country’s main attraction. Total contribution of travel and tourism contribution reaches 7.8% of total GDP (9.4% contribution to employment).



EXPORTS & IMPORTS


The Czech Republic is exceptionally open to international trade – its export/GDP ratio at 80% is one of the highest in Europe, with imports comparably high at EUR 160 billion per year. About 80% of Czech exports go to other EU member states.


2017 export and import data:




Main import partners:
Germany - 29.8%
Poland - 9.1%
China - 7.4%
Slovakia - 5.8%
Netherlands - 5.3%
Italy - 4.0%


Main export partners:
Germany - 32.8%
Slovakia - 7.8%
Poland - 6.1%
France - 5.1%
UK - 5.0%


Czech Republic external trade - 2015




See references for our track record in the Czech Republic.



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