Economy of the Czech Republic

Economy of the Czech Republic

Business district in Prague
Currency	Czech koruna (CZK) = 1 Kč
Fiscal year	calendar year
Trade organisations	EU, WTO (via EU membership) and OECD
Statistics
GDP	$193.5 billion (2016, Nominal) $368.7 billion (2017, PPP)
GDP rank	50th (nominal); 49th (PPP)
GDP growth	2.9% (Q1 2017)[1]
GDP per capita	$18,326 Nominal (2016) $33,223 PPP (2016)
GDP per capita rank	39th (nominal); 40th (PPP)
GDP by sector	Agriculture: 2.5% Industry: 37.5% Services: 60% (2016)[2]
Inflation (CPI)	2.3% (June 2017)[3]
Population below poverty line	9.7% (2016 est.)[4]
Gini coefficient	26.2 (2013)
Labour force	5.244 million (December 2016)
Labour force by occupation	Agriculture: 2.9% Industry: 38.1% Services: 58,9% (Q3 2016)
Unemployment	3.0% (May 2017)[5]
Average gross salary	CZK 27,889 / €1,060 / $1,190 per month (Q1 2017)[6]
Main industries	Engineering, electronics, motor vehicles, metallurgy, machinery, pharmaceuticals
Ease-of-doing-business rank	27th (2017)[7]
External
Exports	$161.4 billion (2013 est. CIA)
Export goods	machinery and transport equipment, raw materials and fuel, chemicals
Main export partners	Germany 32.4%  Slovakia 9%  Poland 5.8%  United Kingdom 5.3%  France 5.1%  Austria 4.1% (2015)[8]
Imports	$143.4 billion (2013 est. CIA)
Import goods	machinery and transport equipment, raw materials and fuels, chemicals
Main import partners	Germany 26.4%  China 12.4%  Poland 8.3%  Slovakia 5.1%  Italy 4.2% (2015)[9]
Gross external debt	$90.18 billion (2012 est.)
Public finances
Public debt	37.2% of GDP as of 2015.
Revenues	$81.08 billion (2012 est.)
Expenses	$87.25 billion (2012 est.)
Economic aid	$2.4bn from EU funds (2004–06)
Credit rating	AA (Domestic) AA- (Foreign) AA+ (T&C Assessment) (Standard & Poor's)[10]
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars.

The Czech Republic has developed an advanced social market economy and social policies that support a high-income welfare state. The Czech Republic is participating in the European Single Market of the European Union and is therefore a part of the economy of the European Union, but uses its own currency, the Czech koruna. It is a member of the OECD.

As of 2016, the Czech GDP per capita at purchasing power parity is $32,622, and $18,020 at nominal value.^[11] Its largest trading partner for both export and import is Germany. As of May 2017, the unemployment rate in the Czech Republic was the lowest in the EU at 3.0%,^[5] and the poverty rate is the second lowest of OECD members only behind Denmark.^[12] Czech Republic ranks 24th in the Index of Economic Freedom,^[13] 31st in the Global Competitiveness Report^[14] and 27th in both the Global Innovation Index^[15] and the ease of doing business index.

The principal industries are engineering and machine-building, steel production, metalworking, transportation equipment, electronics, glass, ceramics, brewing, chemical production and pharmaceuticals. Its main agricultural products are cereals (wheat), vegetable oils and hops. The industry sector accounts for 37.5% of the economy, while services for 60% and agriculture for 2.9%.

History

Pre–1989

The country's strong industrial tradition dates back to the 19th century, when Bohemia and Moravia were the economic heartland of the Austro-Hungarian Empire. The Czech lands produced a majority (about 70%) of all industrial goods in the Austro-Hungarian Empire, some of which were almost monopolistic. The Czechoslovak crown was introduced in April 1919. Introduced at a 1:1 ratio to the Austro-Hungarian currency, it became one of the most stable currencies in Europe.

The consequences of the Munich Agreement were disastrous for the economy. After the occupation and forced subordination of the economy to German economic interests, the crown was officially pegged to the mark at a ratio of 1:10, even though the unofficial exchange rate was 1 to 6-7 and Germans immediately started buying Czech goods in large quantities.^[16]

In accordance with Stalin's development policy of planned interdependence, all the economies of the socialist countries were tightly linked to that of the Soviet Union. Czechoslovakia was the most prosperous country in the Eastern Bloc, however it continued to lag further behind the rest of the developed world. With the disintegration of the communist economic alliance in 1991, Czech manufacturers lost their traditional markets among former communist countries in the east.

Today, this heritage is both an asset and a liability. The Czech Republic has a well-educated population and a well-developed infrastructure.

1989–1995

The "Velvet Revolution" in 1989, offered a chance for profound and sustained political and economic reform. Signs of economic resurgence began to appear in the wake of the shock therapy that the International Monetary Fund (IMF) labelled the "big bang" of January 1991. Since then, consistent liberalization and astute economic management has led to the removal of 95% of all price controls, low unemployment, a positive balance of payments position, a stable exchange rate, a shift of exports from former communist economic bloc markets to Western Europe, and relatively low foreign debt. Inflation has been higher than in some other countries – mostly in the 10% range – and the government has run consistent modest budget deficits.

Two government priorities have been strict fiscal policies and creating a good climate for incoming investment in the republic. Following a series of currency devaluations, the crown has remained stable in relation to the US$. The Czech crown became fully convertible for most business purposes in late 1995.

In order to stimulate the economy and attract foreign partners, the government has revamped the legal and administrative structure governing investment. With the breakup of the Soviet Union, the country, till that point highly dependent on exports to the USSR, had to make a radical shift in economic outlook: away from the East, and towards the West. This necessitated the restructuring of existing banking and telecommunications facilities, as well as adjusting commercial laws and practices to fit Western standards. Further minimizing reliance on a single major partner, successive Czech governments have welcomed U.S. investment (amongst others) as a counterbalance to the strong economic influence of Western European partners, especially of their powerful neighbour, Germany. Although foreign direct investment (FDI) runs in uneven cycles, with a 12.9% share of total FDI between 1990 and March 1998, the U.S. was the third-largest foreign investor in the Czech economy, behind Germany and the Netherlands.

Progress toward creating a stable investment climate was recognized when the Czech Republic became the first post-communist country to receive an investment-grade credit rating by international credit institutions.

The country boasts a flourishing consumer production sector and has privatized most state-owned heavy industries through the voucher privatization system. Under the system, every citizen was given the opportunity to buy, for a moderate price, a book of vouchers that represents potential shares in any state-owned company. The voucher holders could then invest their vouchers, increasing the capital base of the chosen company, and creating a nation of citizen share-holders. This is in contrast to Russian privatization, which consisted of sales of communal assets to private companies rather than share-transfer to citizens. The effect of this policy has been dramatic. Under communism, state ownership of businesses was estimated to be 97%. Privatization through restitution of real estate to the former owners was largely completed in 1992. By 1998, more than 80% of enterprises were in private hands. Now completed, the program has made Czechs, who own shares of each of the Czech companies, one of the highest per-capita share owners in the world.

1995–2000

The country's economic transformation was far from complete. Political and financial crises in 1997, shattered the Czech Republic's image as one of the most stable and prosperous of post-Communist states. Delays in enterprise restructuring and failure to develop a well-functioning capital market played major roles in Czech economic troubles, which culminated in a currency crisis in May. The formerly pegged currency was forced into a floating system as investors sold their Korunas faster than the government could buy them. This followed a worldwide trend to divest from developing countries that year. Investors also worried the republic's economic transformation was far from complete. Another complicating factor was the current account deficit, which reached nearly 8% of GDP.

In response to the crisis, two austerity packages were introduced later in the spring (called vernacularly "The Packages"), which cut government spending by 2.5% of GDP. Growth dropped to 0.3% in 1997, −2.3% in 1998, and −0.5% in 1999. The government established a restructuring agency in 1999 and launched a revitalization program – to spur the sale of firms to foreign companies. Key priorities included accelerating legislative convergence with EU norms, restructuring enterprises, and privatising banks and utilities. The economy, fueled by increased export growth and investment, was expected to recover by 2000.

2000–2005

Growth in 2000–05 was supported by exports to the EU, primarily to Germany, and a strong recovery of foreign and domestic investment. Domestic demand is playing an ever more important role in underpinning growth as interest rates drop and the availability of credit cards and mortgages increases. Current account deficits of around 5% of GDP are beginning to decline as demand for Czech products in the European Union increases. Inflation is under control. Recent accession to the EU gives further impetus and direction to structural reform. In early 2004 the government passed increases in the Value Added Tax (VAT) and tightened eligibility for social benefits with the intention to bring the public finance gap down to 4% of GDP by 2006, but more difficult pension and healthcare reforms will have to wait until after the next elections. Privatization of the state-owned telecommunications firm Český Telecom took place in 2005. Intensified restructuring among large enterprises, improvements in the financial sector, and effective use of available EU funds should strengthen output growth.

2005–2010

Growth continued in the first years of the EU membership. The credit portion of the Financial crisis of 2007–2010 did not affect the Czech Republic much, mostly due to its stable banking sector which has learned its lessons during a smaller crisis in the late 1990s and became much more cautious. As a fraction of the GDP, the Czech public debt is among the smallest ones in Central and Eastern Europe. Moreover, unlike many other post-communist countries, an overwhelming majority of the household debt – over 99% – is denominated in the local Czech currency. That's why the country wasn't affected by the shrunken money supply in the U.S. dollars.

However, as a large exporter, the economy was sensitive to the decrease of the demand in Germany and other trading partners. In the middle of 2009, the annual drop of the GDP for 2009 was estimated around 3% or 4.3%,^[17] a relatively modest decrease. The impact of the economic crisis may have been limited by the existence of the national currency that temporarily weakened in H1 of 2009, simplifying the life of the exporters.

2010–2015

From the financial crisis of 2007–2010, Czech Republic is in stagnation or decreasing of GDP. Some commenters and economists criticising fiscally conservative policy of Petr Nečas' right-wing government, especially criticising ex-minister of finance, Miroslav Kalousek. Miroslav Kalousek in a 2008 interview, as minister of finance in the center-right government of Mirek Topolánek, said "Czech Republic will not suffer by financial crisis".^[18] In September 2008, Miroslav Kalousek formed state budget with projection of 5% GDP increase in 2009. In 2009 and 2010, Czech Republic suffered strong economical crisis and GDP decreased by 4,5%. From 2009 to 2012, Czech Republic suffered highest state budget deficits in history of independent Czech Republic. From 2008 to 2012, the public debt of Czech Republic increased by 18,9%. Most decrease of industrial output was in construction industry (-25% in 2009, -15,5% in 2013). From 4Q 2009 to 1Q 2013, GDP decreased by 7,8%.

In 2012, Czech government increased VAT. Basic VAT was increased from 20% in 2012 to 21% in 2013 and reduced VAT increased from 14% to 15% in 2013. Small enterprises sales decreased by 21% from 2012 to 2013 as result of increasing VAT.^[19] Patria.cz predicting sales stagnation and mild increase in 2013. Another problem is foreign trade. The Czech Republic is considered an export economy (the Czech Republic has strong machinery and automobile industries), however in 2013, foreign trade rapidly decreased which led to many other problems and increase of state budget deficit. In 2013, Czech National Bank, central bank, implemented controversial monetary step. To increase export and employment, CNB wilfully deflated Czech Crown (CZK), which inflation increased from 0.2% in November 2013, to 1.3% in 1Q 2014.

In 2014, GDP in the Czech Republic increased by 2% and is predicted to increase by 2.7% in 2015. In 2015, Czech Republic's economy grew by 4,2% and it's the fastest growing economy in the European Union.^[20] On 29 May 2015, it was announced that growth of the Czech economy has increased from calculated 3,9% to 4,2%.^[21]

2015–present

In August 2015, Czech GDP growth was 4,4%, making the Czech economy the highest growing in Europe.^[22]

On 9 November 2015, unemployment in the Czech Republic was at 5.9%, the lowest number since February 2009.^[23] In September 2016, the unemployment was at 4.0%.^[24] In 2016, for first time since 1995, Czech Republic had budget surplus 61 billion CZK.

European Union

Since its accession to the European Union in 2004, the Czech Republic has been gradually adopting the Economic and Monetary Union of the European Union.

Public policy

As of 2016, the Czech Republic has the second lowest poverty rate of OECD members only behind Denmark.^[12]

Energy

The Czech Republic is reducing its dependence on highly polluting low-grade brown coal as a source of energy. Nuclear power currently provides about 30% of total power needs, and its share is projected to increase to 40%. Natural gas is procured from Russian Gazprom (roughly three-fourths of domestic consumption) and from Norwegian companies (most of the remaining one-fourth). Russian gas is imported via Ukraine (Friendship pipeline), Norwegian gas is transported through Germany. The gas consumption (approx. 100 TWh in 2003-5) is almost two times higher than the electricity consumption. South Moravia has a small amount of oil and gas deposits.

Statistical indicators

From the CIA World Factbook 2015

Background

GDP (pp.): $299.7 billion (2014) GDP Growth: 2.5% (2014) GDP per capita (pp.): $28,400 (2014) GDP per capita (nom.): $19,563 (2014) GDP by sector: Agriculture: 2.9% Industry: 38.7% Services: 60% (2014) Inflation: 0.5% (2014) Labour Force: 5.416 million (2014) Unemployment: 4.2% (July 2016)^[25]

Industrial production growth rate: 4% (2014)

Household income or consumption by percentage share: (2012)

• lowest 10%: 1.5%
• highest 10%: 29.1%

Public Debt: 43.5% GDP (2014)

Trade and finance

Exports: $147.3 billion Export goods: machinery and transport equipment, raw materials, fuel, chemicals (2014)

Imports: $135.1 billion Import goods: machinery and transport equipment, raw materials and fuels, chemicals (2014) Current Account balance: -$4,533,000 (2007) Export partners: Germany 31.7%, Slovakia 9%, Poland 6%, France 5%, UK 4.9%, Austria 4.6% (2013) Import partners: Germany 30.3%, Poland 8.1%, Slovakia 7.2%, China 5.8%, Netherlands 5.5%, Russia 5.1%, Austria 4.1% (2013) Reserves: $59.15 billion (31 December 2014) Foreign Direct Investment: $86.75 billion (2007) Czech Investment Abroad: $6.058 billion (2007) External debt: $116.1 billion (31 December 2014) Value of Publicly Traded Shares: $48.6 billion (2006)

Exchange rates:

• koruny (Kč) per US$1 – 24.67 (May 2015), 18.75 (December 2010),^[26] 18.277 (2007), 23.957 (2005), 25.7 (2004), 28.2 (2003), 32.7 (2002), 38.0 (2001), 38.6 (2001), 34.6 (1999), 32.3 (1998), 31.7 (1997), 27.1 (1996), 26.5 (1995)
• koruny (Kč) per EUR€1 – 27.33 (May 2015), 25.06 (December 2010)^[26]

Energy (production and consumption)

Electricity production: 81.71 billion kWh (2012) Electricity – production by source:

• fossil fuel: 75.54%
• hydro: 2.55%
• nuclear: 20.37%
• other: 1.54% (1998)

Electricity – consumption: 99984629999.7 billion kWh (2012) Electricity – exports: 27.46 billion kWh (2013) Electricity – imports: 10.57 billion kWh (2013) Oil – production: 18,030 bbl/d (2,867 m³/d) (2005) Oil – consumption: 213,000 bbl/d (33,900 m³/d) (2005 est.) Oil – exports: 20,930 bbl/d (3,328 m³/d) (2004) Oil – imports: 203,700 bbl/d (32,390 m³/d) (2004) Oil – proved reserves: 15,000,000 bbl (2,400,000 m³) (1 January 2006) Natural gas – production: 252 million m³ (2013 est.) Natural gas – consumption: 8.477 billion m³ (2013 est.) Natural gas – exports: 8 million m³ (2013 est.) Natural gas – imports: 8.479 billion m³ (2013 est.) Natural gas – proved reserves: 4.276 billion m³ (1 January 2014 est.) Natural resources: coal, timber, lignite, uranium, magnesite. Agriculture – products: wheat, rye, oats, corn, barley, potatoes, rappese oil, sugar beets, hops, fruit; pigs, cattle, poultry, horses; forest products

IT and Telecommunications

Households with access to fixed and mobile telephone access^[27]

• landline telephone – 25% (2009)
  • according to the Czech Statistical Office:^[28] 55,2% (2005); 31,1% (2008); 27,6% (2009); 24,2% (2010); 23,4% (2011); 21,8% (2012)
• mobile telephone – 94% (2009)
  • according to the Czech Statistical Office:^[28] 81,2% (2005); 92,4% (2008); 94,6% (2009); 95,6% (2010); 96,2% (2011); 97,0% (2012)

Individuals with mobile telephone access

• according to the Czech Statistical Office:^[29] 75,8% (2005); 90,6% (2009); 93,9% (2011); 96,0% (2012); 96,0% (2013)

Broadband penetration rate^[27]

• fixed broadband – 19.1% (2010)
• mobile broadband – 3.5% (2010)

Individuals using computer and internet^[27]

• computer – 67% (2009)
  • according to the Czech Statistical Office:^[30] 42,0% (2005); 59,2% (2009); 64,1% (2010); 67,1% (2011); 69,5% (2012); 70,2% (2013)
• internet – 64% (2009)
  • according to the Czech Statistical Office:^[31] 32,1% (2005); 55,9% (2009); 61,8% (2010); 65,5% (2011); 69,5% (2012); 70,4% (2013)

See also

• Czech National Bank
• Prague Stock Exchange

Resources

• Statistická ročenka České republiky (Statistical Yearbook of the Czech Republic) by the Czech Statistical Office. The current line is published annually since 1957. Recent yearbooks can be read online (in Czech and English).
• Czechoslovakia published its first statistical yearbook in 1920. Historically used names: Statistická příručka Republiky československé, Statistická ročenka Protektorátu Čechy a Morava (during the occupation) and Statistická ročenka Československé socialistické republiky.
• Statistics about the Czech lands in Austria-Hungary were collected by Zemský statistický úřad Království českého (Provincial Statistical Office of the Czech Kingdom) founded in 1897. Two detailed books (in Czech and German) were published in 1909 and 1913.

References

External links

• OECD Economic Survey of the Czech Republic
• Czech economic indicators Latest indicators collected by Czech national bank
• OECD's Czech Republic country Web site
• Doing business in Czech Republic at the Wayback Machine (archived 30 May 2008)
• Current economic data
• Economy: Development and potential at the Wayback Machine (archived 11 June 2008)
• Economy of the Czech Republic – Annual Trends
• World Bank Summary Trade Statistics Czech Republic
• Czech Republic - Financial Markets