Czech Republic flag Czech Republic: Economic and Political Overview

The economic context of the Czech Republic

Economic Indicators

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 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 252.50245.35e276.91302.06324.56
GDP (Constant Prices, Annual % Change) 3.0e-5.8e3.84.54.1
GDP per Capita (USD) 23,709e22,94325,80628,07730,114
General Government Balance (in % of GDP) -0.8-5.4e-7.4-5.0-4.5
General Government Gross Debt (in % of GDP) 30.037.8e45.047.950.3
Inflation Rate (%) 2.83.2e3.89.02.3
Unemployment Rate (% of the Labour Force) 2.02.53.43.23.0
Current Account (billions USD) 0.848.774.342.482.72
Current Account (in % of GDP) 0.33.6e1.60.80.8

Source: IMF – World Economic Outlook Database, October 2021

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. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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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

 

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Latest Update: June 2022

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