Czech Republic: Economic and Political Overview
Over the past two decades, the Czech Republic has steadily raised its living standards to match more advanced EU economies, driven by market-oriented policies, fiscal discipline, a sound financial system, and strong institutions. After stagnation, growth resumed in late 2023, with GDP rising by 1.2% annually in the first half of 2024. However, the recovery has been uneven. Consumer spending has grown, supported by rising real wages and a decrease in the household saving rate, while investment remains weak due to global trade uncertainty, tight domestic policies, and slow EU fund absorption. The IMF estimated GDP growth at 1% in 2024. As the policy mix becomes more supportive and external demand strengthens, growth is expected to accelerate to 2.4% in 2025. However, weak productivity growth and structural labour shortages will limit medium-term potential growth, estimated at around 2% (IMF).
In 2024, the budget deficit decreased to 2.2%, down from 2.6% in 2023. This improvement was driven by the expiration of measures to mitigate high energy prices, a reduction in government subsidies for renewable energy, and a continued decrease in expenditure alongside increased revenue as part of the government consolidation package. The budget deficit is projected to remain stable in 2025, shifting the fiscal stance from contractionary to neutral. Revenue growth will be supported by social security contributions and personal income taxes, as salaries are expected to outpace GDP growth. Expenditure will continue to fall as a percentage of GDP, though at a slower rate. While the growth of social benefits will slow due to reduced pension indexation, government employee compensation is expected to rise with nominal wage increases. The deficit is projected to decrease to 1.6% in 2026 (IMF). The public debt ratio remains relatively low at 43.1% of GDP in 2024; although it is 14 percentage points higher than pre-pandemic levels, it is still low compared to the EU average. The IMF forecasts a rise to 45.4% by 2026, driven by the negative headline balance, only partly offset by nominal GDP growth. After two years of double-digit inflation, HICP headline inflation is expected to slow to 2.4% in 2025 (from 2.5% in 2024) and 2% in 2026. Energy is expected to contribute negatively to inflation in 2025, with declining wholesale prices and subdued network tariff growth. HICP inflation excluding energy, food, alcohol, and tobacco is projected to remain higher than headline inflation, at 4.2% in 2024 and 3.0% in 2025 (IMF).
Despite subdued economic activity and a decline in job vacancies, the Czech labour market continues to face structural job shortages, especially among skilled workers, and labour hoarding. The unemployment rate picked up to an estimated 2.8% last year, from 2.6% in 2023, and is expected to decrease to 2.5% in 2025. While unemployment remains among the lowest in the EU, labour market pressures should ease slightly. Wage growth was projected at 6.2% in 2024 and 6.5% in 2025, before slowing to 5.6% in 2026. The IMF estimated the country’s GDP per capita (PPP) at USD 59,205 in 2024, 8.4% below the EU average.
| Main Indicators | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) | 2027 (E) |
| GDP (billions USD) | 343.21 | 342.99 | 360.23 | 377.34 | 392.32 |
| GDP (Constant Prices, Annual % Change) | -0.1 | 1.1 | 2.3 | 2.3 | 2.1 |
| GDP per Capita (USD) | 31,630 | 31,366 | 33,038 | 34,712 | 36,202 |
| General Government Balance (in % of GDP) | -2.6 | -2.8 | -2.3 | -1.7 | -1.5 |
| General Government Gross Debt (in % of GDP) | 42.4 | 43.5 | 43.8 | 43.6 | 43.5 |
| Inflation Rate (%) | 10.7 | 2.3 | 2.0 | 2.0 | 2.0 |
| Unemployment Rate (% of the Labour Force) | 2.6 | 2.8 | 2.5 | 2.4 | 2.4 |
| Current Account (billions USD) | 1.32 | 0.27 | 1.14 | 1.08 | 1.67 |
| Current Account (in % of GDP) | 0.4 | 0.1 | 0.3 | 0.3 | 0.4 |
Source: IMF – World Economic Outlook Database, October 2021
The Czech agricultural sector went through a serious crisis in the 1990s and remains highly subsidised. Nowadays, it accounts for 1.7% of the country's GDP and employs 3% of the labour force (World Bank, latest data available). Czechia has an agricultural area of 3.5 million ha and a forest area of 2.65 million ha (FAO). The main agricultural products are sugar beet, potatoes, wheat, barley and poultry. According to the Czech Statistical Office, in 2023, the agricultural industry's output fell by 7.9%, driven by a 17.4% drop in crop production, while animal production grew by 6.3%. Cereals (41.1%) and industrial crops (24.5%) dominated crop output, while milk (54.1%), pigs (14.7%), and cattle (12.5%) led animal production. Crop production (53.3%) remained higher than animal production (39.7%). Farmers' entrepreneurial income plunged by 58.0% compared to 2022. In 2024, pigmeat and poultry meat production rose after two years of decline, while beef production fell, though farms maintained production capacity. Exports of animals for slaughter increased.
Industry accounts for 30.4% of GDP and employs 36% 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 now employs more than 150,000 people and accounts for more than 20% of both Czech manufacturing output and Czech exports. The 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 20% of GDP. The Czech Republic is shifting from a manufacturing-heavy, export-driven economy to a more mature and diversified one. Key growth sectors like non-auto manufacturing, energy, and construction have slowed down due to falling productivity, rising energy costs, and weak demand. While the auto industry has remained resilient, the shift to electric vehicles and increasing foreign competition are expected to create significant challenges in the coming years. Industrial production dropped 1.4% in 2024, mainly due to weaker demand in mechanical and plant engineering and reduced output in metal manufacturing, processing, and machining—with both production and orders declining. Construction also fell by 2.4% compared to the previous year, per Czech Statistical Office data.
Services account for 59.7% of GDP and employ nearly 62% of the active population. The tourism sector recorded a pace of sustained growth in recent years, which was partially hampered by the COVID-19 pandemic. Nevertheless, Czechia welcomed about 22.8 million tourists in 2024, exceeding pre-pandemic levels for the first time. Overnight stays rose by 2.6% to 57.3 million nights, with a 3.8% year-on-year increase in the number of accommodated tourists. According to the CSO, both guest numbers and overnight stays surpassed 2019 figures for the first time since the COVID-19 outbreak. By the end of 2023, 46 licensed banks operated in Czechia, including four large, six medium-sized, seven small banks, 24 foreign bank branches, and five building societies. The sector's total assets rose by about 11% to CZK 9,890 billion (€400 billion), roughly 130% of GDP (data European Banking Federation, latest data available). Finally, the retail sector is also growing, with sales rising by 4.6% year-on-year in 2024 (CSO).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 2.7 | 35.7 | 61.6 |
| Value Added (in % of GDP) | 1.7 | 30.4 | 59.7 |
| Value Added (Annual % Change) | -1.0 | -1.9 | 1.8 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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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.}}
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
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.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
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