Czech Republic

Investment recovery will drive pick-up in growth


LOW RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

GDP USD215.726bn (World ranking 47, World Bank 2017)
Population 10;59mn (World ranking 86, World Bank 2017)
Form of state Parliamentary Democracy
Head of government Andrej Babiš (PM)
Next elections 2020, legislative (Senate)
  • EU membership and good international relations
  • High income economy with fairly strong underlying macroeconomic fundamentals
  • Solid monetary policy
  • Favorable public finances
  • Manageable external debt burden
  • Sound banking sector that has proven resilient to adverse shocks
  • Favorable business environment
  • History of fragile coalition governments, resulting in often ineffective policymaking and slow reform progress
  • High export dependence and unfavorable export structure

Growth set to regain momentum

The Czech economy lost momentum in 2016, with real GDP growth decelerating to +2.4%, down from +4.5% in 2015. Fixed investment was the main driver of the slowdown, contracting by -3.5%, mainly due to base effects (+9% in 2015) and a much lower level of EU funds absorption. Otherwise, growth was broad-based. Both private and public consumption eased slightly but remained robust, increasing by +2.9% and +1.5%, respectively. Inventories added +0.5pp to overall 2016 growth. External trade activity moderated in 2016, with exports expanding by +4.3% (+7.7% in 2015) and imports by +3.2% (+8.2% in 2015). As a result, net exports added +1.1pp to 2016 growth (+0.1pp in 2015).

In Q1 2017, unadjusted real GDP rose by +3.9% y/y (calendar-adjusted by +1.3% q/q and +2.9% y/y), driven evenly by both domestic and external demand. Fixed investment is on course of a gradual recovery as EU co-financed investment activity should rise under the 2014-2020 programming period. We expect GDP growth to pick up to +3% in 2017, before slightly easing to +2.8% in 2018.

Strong macroeconomic fundamentals

After three years of near-deflation, inflation is back on track, reaching 2% at end-2016 and averaging 2.3% y/y in January-April 2017. We expect it to remain within the 2%±1pp inflation target range of the Czech National Bank (CNB; the central bank) until end-2018. As a consequence, the CNB removed the exchange rate floor of EUR1:CZK27, which it had imposed in 2013 to fend off deflation, in April 2017. Following the lifting of the cap, currency volatility has slightly increased but at about +2% at the time of writing, the CZK appreciation against the EUR has been far from disorderly. Volatility is likely to continue in the short term. In the medium term, we expect a gradual strengthening of the CZK to a new equilibrium rate. In any event, expect the CNB to be prepared to mitigate potential excessive exchange rate fluctuations, if needed.

Public finances are favorable. The fiscal balance shifted to a surplus of +0.6% of GDP in 2016 and is forecast to be near-balanced in 2017-2018. Public debt has fallen to a moderate 37% of GDP.

The external position is comfortable as well. The current account posted a surplus of +1.1% of GDP in 2016 and should remain in surplus in 2017-2018. Gross external debt is elevated in relation to GDP (75% in 2016) but moderate in relation to export earn­ings (93%) and the debt-service ratio is forecast at just 15% in 2017. Foreign exchange reserves have surged to EUR124bn in April 2017, sufficient to cover 11 months of imports or, in other terms, all external debt payments falling due in 2017.


Trade structure by destination/origin

(% of total)

Exports Rank Imports
Germany 28%
28% Germany
Slovakia 10%
12% China
Poland 6%
9% Poland
United Kingdom 5%
7% Slovakia
France 4%
5% Netherlands

Trade structure by product

(% of total)

Exports Rank Imports
Cars And Cycles 11%
8% Computer Equipment
Vehicles Components 8%
7% Electrical Apparatus
Electrical Apparatus 8%
6% Telecommunication Equipment
Engines 6%
5% Vehicles Components
Computer Equipment 6%
5% Engines

The payment culture of domestic companies is generally good but when it comes to settling bills some delays can be expected.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

The court system is complex and is criticized for a lack of transparency and independence. In addition, legal proceedings tend to be overly lengthy and costly while enforcing court decisions may also be problematic.

When the debtor has become insolvent, debt-renegotiation mechanisms are inefficient and liquidation is the default procedure so that the chances of collecting the debt are extremely poor.

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Collection complexity Czech Republic

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