Czech Republic flag Czech Republic: Economic and Political Overview

The economic context of the Czech Republic

Economic Indicators

Covid-19 weighed on the fundamentals of the Czech economy that had supported growth: domestic demand, tax, revenues and exports. To date, the Czech Republic is the only European Union country with economic performance below 2019 levels. After growing by 2.3% in 2022, GDP stagnated in 2023 (+0.2%), as high inflation and stringent financial conditions resulted in a reduction of real household income and a rise in precautionary savings, thereby suppressing private consumption. Net exports, buoyed by reduced imports of energy and the reduction of accumulated inventories, made a positive contribution. According to the IMF, growth is set to gradually pick up in 2024 (2.3%) and 2025 (2.9%), fueled by decreasing inflation, which boosts real disposable income. Furthermore, the gradual easing of financing conditions and a high savings rate are poised to provide additional support for consumption. Conversely, the implementation of a fiscal consolidation package and the conclusion of energy-related measures are projected to exert a contractionary influence.

In 2023, the budget deficit remained stable at 3.8% of GDP, driven by expenditures outpacing GDP growth, attributed to the automatic indexation of pensions to inflation and initiatives aimed at alleviating the effects of elevated energy prices: the total net budgetary cost of these energy-related measures was estimated to amount to 1.2% of GDP. The projected scenario indicates a decline in the budget deficit to 2.2% of GDP in 2024 (IMF), due to the expiration of measures aimed at alleviating the impact of elevated energy prices, coupled with the government's implementation of a consolidation package. Public debt is still low compared to the EU average despite its high pace of growth in 2020-2022. The public debt-to-GDP ratio increased from 44.2% in 2022 to 45.4% last year but is expected to resume a downward trend over the forecast horizon (to around 44% by 2025 – IMF). Following a peak in headline inflation at 18% in the first quarter of 2023, the rate has substantially decreased, primarily influenced by a reduced growth rate in energy and food prices. The overall inflation rate was estimated at 10.9% in 2023 by the IMF. Due to salary hikes, inflation, excluding unprocessed food and energy, is anticipated to decrease at a rate less pronounced than headline inflation but is expected to stay at a moderate level.

Czechia has a tight labour market and a low share of temporary contracts, with one of the lowest ratios of unemployment in Europe, at 2.8% in 2023 (from 2.1% one year earlier). Market conditions may get tighter as Ukrainian refugees join the labour market, but the unemployment rate is expected to remain low this year and the next (2.6% and 2.3%, respectively - IMF). The IMF estimated the country’s GDP per capita (PPP) at USD 49,025 in 2023, 14% below the EU average, although nominal wage growth lagged behind inflation last year, reducing real disposable income.  

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 290.57332.03325.88337.53351.16
GDP (Constant Prices, Annual % Change) 2.3-0.40.72.02.1
GDP per Capita (USD) 26,83630,60029,80130,95632,303
General Government Balance (in % of GDP) -3.4-3.1-1.8-1.7-1.5
General Government Gross Debt (in % of GDP) 44.244.245.145.245.1
Inflation Rate (%) 15.110.72.12.02.0
Unemployment Rate (% of the Labour Force) 2.22.62.62.52.4
Current Account (billions USD) -17.784.051.833.363.92
Current Account (in % of GDP) -6.11.20.61.01.1

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

The Czech agricultural sector went through a serious crisis in the 1990s and remains highly subsidised. Nowadays, it accounts for 1.9% of the country's GDP and employes 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. Organic farming in the country is characterized mainly by the extensive breeding of cattle, goats and sheep in less favourable agricultural areas. According to the first estimates from the Czech Statistical Office, cereals production decreased by 3.4% year-on-year in 2023 reaching CZK 25.1 billion; whereas that of animal products increased to CZK 27.9 billion (+3,3% y-o-y).

Industry accounts for 29.6% of GDP and employs 37% 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 21% of GDP.

Services account for 59.2% of GDP and employ nearly 61% 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, the sector started its recovery in 2022 and continued in 2023 when the overall guest count during the summer season surpassed the figures recorded in the pre-COVID year 2019 for the first time. The increase in arrivals stood at 4.3%, and the number of overnight stays exceeded the 2019 levels by 2.4%. Notably, the year witnessed an almost 15% rise in the accommodation of Czech visitors. However, there remains an absence of about one-tenth of foreign guests, indicating a potential area for improvement or exploration in attracting international visitors.  In 2021, there were 46 licensed banks operating in the Czech Republic: four large banks, five medium-sized banks, nine small banks, 23 branches of foreign banks and five building societies. 37 entities were controlled by foreign owners, of which 12 were banks and 25 were branches (data European Banking Federation, latest data available). As of January 31, 2023, the total assets of commercial banks stood at approximately USD 438 billion (data U.S. Department of State).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.5 36.9 60.6
Value Added (in % of GDP) 2.1 30.7 57.9
Value Added (Annual % Change) -2.4 1.6 3.1

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

 

Country Risk

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Sources of General Economic Information

Ministries
Ministry of Agriculture
Ministry of Foreign Affairs
Ministry of Industry and Trade
Ministry of Finance
Statistical Office
Czech Statistical Office (CZSO)
Central Bank
Czech National Bank  
Stock Exchange
Prague Stock Exchange
Czech Capital Market Association
Economic Portals
Businessinfo.cz, Czech business web portal
Financni Noviny, News in Czech
 

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Latest Update: June 2024