Economy of the Czech Republic

Economy of Czech Republic

Pankrác financial district in Prague
Currency Czech koruna (Kč or CZK)
calendar year
Trade organisations
 EU, WTO (via EU membership) and OECD
Statistics
GDP Increase $314.6 billion PPP (2014 IMF) ; Increase$205,7 billion nominal
GDP rank 38th (PPP)
GDP growth
 Increase 4.5% (Q3 2015 )
GDP per capita
 Increase $29,925 PPP (2014)
Increase $19,563 Nom (2014)
GDP by sector
 agriculture: 1.8%, industry: 39.6%, services: 58.6% (2012 est.)
line-height:1.1em
 Increase 0.4% (Q2 2015)[1]
Population below poverty line
 8,6% (2012 est.)[2]
26.4 (2012)
Labour force
 5.304 million (2013 est.)
Labour force by occupation
 agriculture: 2.6%, industry: 37.4%, services: 60% (2012)
Unemployment Decrease5.9%[3]
Average gross salary
 CZK 26,287 / €972 / $1,299 per month (2015 Q2)[4]
Main industries
 motor vehicles, metallurgy, machinery and equipment, glass, armaments
44th[5]
External
Exports Increase $161.4 billion (2013 est. CIA)
Export goods
 machinery and transport equipment, raw materials and fuel, chemicals
Main export partners
  Germany 31.8%
 Slovakia 9.1%
 Poland 6.1%
 France 5.1%
 United Kingdom 4.9%
 Austria 4.7%
(2012 est.)[6]
Imports Increase$143.4 billion (2013 est. CIA)
Import goods
 machinery and transport equipment, raw materials and fuels, chemicals
Main import partners
  Germany 29.5%
 Poland 7.7%
 Slovakia 7.4%
 China 6.3%
 Netherlands 5.8%
 Russia 5.3%
 Austria 4.3% (2012 est.)[7]
Decrease$90.18 billion (2012 est.)
Public finances
Increase37.2% of GDP as of 2015.
Revenues Decrease$81.08 billion (2012 est.)
Expenses Decrease$87.25 billion (2012 est.)
Economic aid $2.4bn from EU funds (2004–06)
AA (Domestic)
AA- (Foreign)
AA+ (T&C Assessment)
(Standard & Poor's)[8]
line-height:1.25em;padding:0.2em;
Czech National Bank in Prague
Average gross wage Czech Republic 1985–2008

The Czech Republic has the most developed industrialized economic system of the countries in Central and Eastern Europe. The country has quickly become the most stable and prosperous of the post-Communist states of Europe.

In 2014, the Czech GDP per capita at purchasing power parity was $29,925.,[9] and $19,563 at nominal value.

The principal industries are heavy and general machine-building, iron and steel production, metalworking, chemical production, electronics, transportation equipment, textiles, glass, brewing, china, ceramics, and pharmaceuticals. Its main agricultural products are sugar beets, fodder roots, potatoes, wheat, and hops.

History

Further information: Economy of Czechoslovakia

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.[10]

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 republic 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 republic'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

Czech republic export 2007
Czech republic import 2007

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%,[11] 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

The Czech Republic Export Treemap by Product (2013) from Harvard Atlas of Economic Complexity
The Czech Republic Import Treemap by Product (2013) from Harvard Atlas of Economic Complexity

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".[12] 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.[13] 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.[14] On 29 May 2015, it was announced that growth of the Czech economy has increased from calculated 3,9% to 4,2%.[15]

GDP growth rates of 1st quarter 2015 of the European Union countries.

2015–present

In August 2015, Czech GDP growth was 4,4%, making the Czech economy the highest growing in Europe.[16]

On 9 November 2015, unemployment in the Czech Republic was at 5.9%, the lowest number since February 2009.[17]

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

Czech Republic GDP Annual Growth Rate from 2005 to 2015
Change of GDP per capita in CZK (1995-2011)

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: 6.7% (May 2015)[18]

Industrial production growth rate: 4% (2014)

Household income or consumption by percentage share: (2012)

Public Debt: 43.5% GDP (2014)

    Trade and finance

    European GDP (PPP) per capita in 2012

    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:

    Energy (production and consumption)

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

    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[20]

    Individuals with mobile telephone access

    Broadband penetration rate[20]

    Individuals using computer and internet[20]

    See also

    Resources

    References

    1. ↑ "Inflation, Consumer Prices". Czech Statistical Office. Retrieved 19 August 2015.
    2. ↑ "Czech Republic". World Bank. Retrieved 18 September 2015.
    3. ↑ "Nezaměstnanost v říjnu opět klesla, lidí bez práce je nejméně od února 2009" (PDF). Retrieved 9 November 2015.
    4. ↑ "Average wages - 2. quarter of 2015". Czech Statistical Office. Retrieved 11 October 2015.
    5. ↑ "Doing Business in Czech Republic 2015". World Bank. Retrieved 2015-03-20.
    6. ↑ "Export Partners of Czech Republic". CIA World Factbook. 2012. Retrieved 2013-07-24.
    7. ↑ "Import Partners of Czech Republic". CIA World Factbook. 2012. Retrieved 2013-07-24.
    8. ↑ "Sovereigns rating list". Standard & Poor's. Retrieved 15 January 2012.
    9. ↑ "International Monetary Fund's Report for Selected Countries and Subjects". International Monetary Fund. Retrieved 19 August 2015.
    10. ↑ "History of Czechoslovak currency". zlate-mince.cz (in Czech). Retrieved 17 July 2014.
    11. ↑ "Earth Times: show/278536,czech-economy-to-shrink-by-43-per-cent-in-2009.html". Retrieved 3 March 2015.
    12. ↑ "Miroslav Kalousek: Moná vás zklamu: krize nám nehrozí". Hospodáøské noviny. Retrieved 3 March 2015.
    13. ↑ "Služby - vývoj tržeb ve službách v ČR, 2015". Retrieved 3 March 2015.
    14. ↑ "Česká ekonomika roste nejrychleji v celé EU". ČT24. Retrieved 9 June 2015.
    15. ↑ "Tvorba a užití HDP - 1. čtvrtletí 2015, Rychlejší růst české ekonomiky potvrzen (in Czech)". Czech Statistical Office. Retrieved 29 May 2015.
    16. ↑ "Czechs Power EU’s Fastest GDP Growth as Romania, Hungary Stumble". Bloomberg Business. Retrieved 14 August 2015.
    17. ↑ "Nezaměstnanost v říjnu opět klesla, lidí bez práce je nejméně od února 2009" (PDF). Retrieved 9 November 2015.
    18. ↑ Počet nezaměstnaných klesl pod půl milionu
    19. 1 2 "CEE Basic Data - Key economic indicators and forecasts". Retrieved 3 March 2015.
    20. 1 2 3 IT and telecommunications in Central and Eastern Europe Archived October 11, 2013, at the Wayback Machine.
    21. 1 2 http://www.czso.cz/csu/2013edicniplan.nsf/t/0E002419AC/$File/0001132115.xls
    22. ↑ http://www.czso.cz/csu/2013edicniplan.nsf/t/0E0024189E/$File/0001132118.xls
    23. ↑ http://www.czso.cz/csu/2013edicniplan.nsf/t/0E0024193D/$File/0001132119.xls
    24. ↑ http://www.czso.cz/csu/2013edicniplan.nsf/t/0E002418A7/$File/0001132120.xls

    External links

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