Economic and Political Overview

flag Czech Republic Czech Republic: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Covid-19 weighed on fundamentals of the Czech economy that had supported growth - domestic demand, tax, revenues and exports. A decline in all three meant that the Czech economy contracted by 5.8% in 2020. Nevertheless, the country’s economy rebounded in 2021, supported by robust domestic demand, and grew by an estimated 3.8% despite supply chain disruptions that weighed on production and exports (particularly in the automotive sector). Economic activity is forecast to accelerate in 2022, driven by both domestic and foreign demand, including public investment supported by the EU’s Recovery and Resilience Facility. Overall, the IMF forecasts a growth of 4.5% this year, followed by 4.1% in 2023.

The Czech economy had already shown signs of slowing before the outbreak of Covid-19 amid a lower growth in Germany and trade uncertainties caused by Brexit. In 2021, higher expenditure triggered by the extensive fiscal stimulus measures to contain the effects of the COVID-19 pandemic, a reduction in personal income taxes, and further increases in pensions and public wages prompted an increase in the general government budget deficit, which stood at 7.4% of GDP. As most measures phase out, the headline general budget deficit is expected to decrease to 5% in 2022 and 4.5% in the following year, but still staying well above its pre-pandemic levels. Although public debt is still low compared to other EU Member States, the debt-to-GDP ratio is expected to follow an upward trend over the forecast horizon, increasing from a ratio of 45% in 2021 to 50.3% in 2023 (was 30% before the pandemic - IMF), driven by a negative headline balance only partly offset by nominal GDP growth. Rising production input prices and increased consumer demand prompted a rise in inflation, which stood at 2.7% in 2021 (still within the Czech Central Bank's tolerance band of 1-3%). It is expected to gradually decrease this year (2.3%) and the next (2%).

Czechia has a tight labour market and a low share of temporary contracts, with one of the lowest ratios of unemployment in Europe: at 3.4% in 2021, it is still above the levels recorded before the start of the pandemic. The accelerating economic growth should improve labour market conditions over the forecast period, with the unemployment rate decreasing to 3.2% in 2022 and 3% in 2023. However, labour shortages put constraints on future growth whereas the country's population is ageing and declining. Nonetheless, the share of high-skilled workers in the labour force has continued to rise in recent years. The IMF estimates the country’s GDP per capita (PPP) at USD 42,956 in 2021, slightly below the EU average.

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 245.98281.78295.62314.72337.76
GDP (Constant Prices, Annual % Change) -5.53.51.91.53.9
GDP per Capita (USD) 2326282932
General Government Balance (in % of GDP) -5.5-6.3-4.3-3.4-2.9
General Government Gross Debt (in % of GDP) 37.642.041.541.241.4
Inflation Rate (%) 3.23.816.38.62.5
Unemployment Rate (% of the Labour Force) 2.52.82.52.32.3
Current Account (billions USD) 4.90-2.62-12.70-6.92-3.26
Current Account (in % of GDP) 2.0-0.9-4.3-2.2-1.0

Source: IMF – World Economic Outlook Database, Latest available data

Note: (e) Estimated Data

 

Main Sectors of Industry

The agricultural sector went through a serious crisis in the 1990s and remains highly subsidised. In 2019, it accounted for 1.9% of the country's GDP and employed 2.7% of the labour force (World Bank, latest data available). The country has an agricultural area of 5.5 million ha and a forest area of 2.65 million ha (FAO). The main agricultural products are sugar beet, potatoes, wheat, barley and poultry. Cereals (22.7%), milk (20.5%), industrial crops (15.4%) and forage plants (10%) are the most important sectors in terms of production value in the Czech Republic (European Commission).

Industry accounts for 30.8% of GDP and employs 37.2% 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. The Czech automotive industry employs more than 150,000 people and accounts for more than 20% of both Czech manufacturing output and Czech exports. Czech electronics and electrical engineering sector accounts for more than 14% of total manufacturing output, which makes it the second-largest sector in the economy (over 17,000 companies employ more than 180,000 workers in the sector). Overall, the manufacturing industry contributes 22% of GDP.

Services account for 58.3% of GDP and employ nearly 60.1% of the active population. The tourism sector recorded a pace of sustained growth, with the number of guests accommodated in collective accommodation establishments reaching almost 22.0 million in 2019. Unfortunately, the Covid-19 pandemic had a negative impact on the tourism sector in 2020, with the number of tourists decreasing by 51% (Czech Statistical Office). In the same year there were 49 licensed banks operating in the Czech Republic: four large banks, five medium-sized banks, 10 small banks, 25 branches of foreign banks and five building societies. 37 entities were controlled by foreign owners, of which 12 were banks and 25 were branches. Domestic owners controlled 12 banks, two of which are co-owned by the state. At the end of 2020, the total value of the banking sector’s assets reached CZK 7,965 billion, representing about 141% of GDP (European Banking Federation).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.7 37.3 60.1
Value Added (in % of GDP) 1.9 30.8 58.3
Value Added (Annual % Change) 6.5 -9.2 -3.9

Source: World Bank, Latest available data.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
73,8/100
World Rank:
27
Regional Rank:
14

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
7.28/10
World Rank:
26/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
President: Miloš Zeman (since March 2013 ; re-elected for a second term in January 2018) – SPO
Prime Minister: Petr Fiala (since 17 December 2021) - ODS
Next Election Dates
Presidential: January 2023
Senate: October 2022
Chamber of Deputies: October 2025
Current Political Context
Since 2017 Czechia had been ruled by a minority government consisting of ANO 2011, led by prime minister Andrej Babiš, and the Czech Social Democratic Party (ČSSD), with confidence and supply support from the Communist Party of Bohemia and Moravia (KSČM). Nevertheless, following the parliamentary election held in October 2021, a new government took office in December 2021, composed of two opposition coalitions, under the leadership of Civic Democrat (ODS) chairman Petr Fiala. The Together (SPOLU) coalition (comprising the ODS, Christian Democrats, TOP09) and the alliance of the Mayors and Independents and the Pirates Party (CSP) obtained a solid majority of 108 seats in the 200-member lower house of parliament.
Although the change in the ruling coalition, the Czech Republic is not expected to take any concrete action to join the Eurozone anytime soon.
Main Political Parties

Parties need to secure 5% of the vote in order to obtain parliamentary representation. The country's main political parties are:

Type of State
The Czech Republic is a parliamentary, democratic and pluralist republic.
Executive Power
The President is the chief of state and is elected by direct public vote for a five-year term. The President has limited specific powers, the most important of which are to return enacted laws to the Parliament and to dissolve the Parliament under specific constitutionally outlined conditions. The President appoints the Prime Minister and the Cabinet based on the recommendation of the Prime Minister. The Prime Minister is the head of the government and holds executive powers, including the right to set the agenda for most foreign policies and to choose governmental ministers. The Prime Minister is generally the head of the majority party or coalition in the Parliament and carries considerable political power.
Legislative Power
The legislature is bicameral. The Parliament consists of: the Senate (the upper house), its 81 members elected by popular vote to serve six-year terms (with one-third of its members elected every two years) and the Chamber of Deputies (the lower house) with its 200 members elected by popular vote to serve four-year terms. The executive branch is dependent on parliamentary support. The Prime Minister cannot dissolve the parliament without the approval of both the President and the members of the Parliament.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
40/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
1/7
Civil Liberties:
1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

COVID-19 epidemic evolution

To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Czech Republic, please visit the dedicated portal of the Czech Ministry of Health (in Czech).
For the international outlook you can consult the latest
situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.

Sanitary measures

Latest information on the public health situation, relevant advice and COVID-19 safety measures are available on the portal of the Czech Ministry of Health dedicated to COVID-19. Furthermore, the Ministry of Interior provides an overview of the measures adopted against the epidemic.

Travel restrictions

The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.

Import & export restrictions

For the information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the official portal BusinessInfo.cz (both in Czech) and the website of the Czech Customs Administration. Further details are available on the "Customs measures" section of KPMG's website.
The “Guidelines for border management measures to protect health and ensure the availability of goods and essential services” issued by the European Commission can be consulted
here.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Czech Republic on the
International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

For information on the economic recovery scheme put in place by the government of Czech Republic to address the impact of the COVID-19 pandemic refer to the handbook summary in English here and to the website of the Ministry of Labour and Social Affairs. An overview of the measures in English is available on KPMG's website.
The information on the EU’s economic response to COVID-19 and the actions to minimise the fallout on the EU member states’ economies of the COVID-19 outbreak is available on the websites of the
European Commission and the European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Czech government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Czech Republic in the
IMF’s Policy Tracker platform.

Support plan for businesses

For the information on the local business support scheme established by the Czech government to help businesses to deal with the economic impacts of the COVID-19 epidemic on their activity, please consult the website of the Ministry of Industry and Trade and the official governmental portal BusinessInfo.cz (in Czech). Further information can be found on the website of the Czech Chamber of Commerce (in Czech).
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document.

You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

Support plan for exporters

To find out about the support plan for exporters put in place by the Czech government, including exemption from customs duties and VAT on imports of goods related to COVID, please visit the website of the Czech Customs Administration (in Czech). Further information can be consulted on the official portal BusinessInfo.cz (both in Czech).
The European Commission adopted a Temporary Framework for State aid measures to support the economy in the COVID-19 outbreak, which enables short-term export credit insurance to be provided by the State where needed.

 

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Latest Update: November 2022