Czech Republic

The 2016 MoD budget, higher by CZK 4 billion when compared to a year before (2015), reached the CZK 47.78 billion (see chart below), which after the subtraction of the total MoD revenues (insurance & tax revenues & non-tax revenues, capital revenues and transfers received), accounted for CZK 42.65 billion. The already approved budget for 2017, reflects a further increase to CZK 52.54 billion, while forecasts for 2018 raise this figure to CZK 57.24 billion.

The position of the Czech Republic in the centre of Europe, allows the country a strategic advantage with its excellent access to established western and emerging eastern markets. Its membership in the EU Single Market, has helped the Czech Republic to grow as a transit hub between EU countries. It should be noted that in 2004, the country was the most dynamic exporter among the EU countries, in terms of per capita value of exports.
 
Towards the aforementioned, the country’s transport infrastructure has played a vital role; the road and motorway network of a total of 55,748km, is one of the densest in Central and Eastern Europe, while several modernisation projects are currently underway, which will allow the Czech Republic to join the pan-European network of high-speed railways.

The Czech Republic recorded a significant GDP growth till 2007. However, in the following years, the export-oriented Czech economy was seriously affected by the reduced external demand for Czech products. In 2008, the GDP growth rate dropped by 3%, to reach in 2009 a low of -4.7%. The subsequent positive growth of the next two years (2010-2011), was followed by another two-year period of negative growth rate.

When compared to other countries though, the Czech Republic’s GDP has not been affected significantly in nominal terms (see chart below, years 2009 and 2010). However, the growth rate has not managed to reach yet, the before crisis levels, amounting to only 1.98% in 2014 and a respectable 4.4% in 2015.

The high growth rate recorded in 2015, can be attributed to the one-off and temporary factors of the utilisation of EU funds that could be used by the end of 2015, as well as the transfer of part of the accrual revenue from the excise duty on tobacco products from 2014. Therefore, it was forecasted that the GDP growth rate, would decrease to 2.5% in 2016, and stabilise to about 2.9% for 2017-2018.

The main sectorial contributors to the GDP, for 2015, were Industry (32.5%), Trade & Transportation (18.3%), followed by Public Administration (14.8%) and Real Estate activities (8.1%).

Since 2004, the Czech Republic has been recording continuous positive trade balances, as exports have surpassed the value of imports. Moreover, foreign trade with the neighbouring countries (those belonging to the Central European Free Trade Agreement (CEFTA)), has become easier in recent years, due to associated arrangements; this has had a strong impact on the performance of the national economy of the Czech Republic.

In 2015, the trade balance reached a surplus of €14.9 billion, decreased though by €0.7 billion when compared to a year before. In the same year, exports grew by 7.5%, while imports grew by 8.6%.

In the last few years, Machinery & Transport equipment exports have increased significantly to reach 55.5% of the total exports, while the Manufactured goods exports have slowed down, reaching the 15.8% of the Czech exports worldwide.

In the same year, the main export destinations for Czech products were Germany (by far the most important trade partner for the country), Slovakia, Poland, the UK and France.

In terms of imports, these mainly included Machinery and transport equipment (45.3%), Manufactured goods by material (17.2%) and Chemicals and related products (11.4%).

The Czech Republic has among the lowest unemployment rates in the EU, exchanging in most recent times the top position with Germany. Specifically, in October of 2016, the Czech Republic with 3.8% held the top position (as far as the lowest unemployment rate) in the EU, followed by Germany with 4.1%.

Notably, from 2012 onwards, local unemployment has decreased by almost 2%, to reach the 5.1% rate in 2015.

Predictions showcase a further decline of the unemployment rate, for the years 2016 and 2017.

The Czech Republic’s membership to the Multilateral Investment Guarantee Agency (MIGA), as well the bilateral agreements it has established for the protection of foreign investments (e.g. with the US, Germany, the UK, France, Austria, Switzerland, Denmark, China and others), in addition to the avoidance of double taxation, have all contributed to the increase of flows of investments into the country.

The introduction of investment incentives during the late 1990s, have stimulated a significant inflow of FDI in greenfield projects. The subsequent amendments made to the investment-incentives legislation, further helped towards the attraction of new investments. The low inflation levels, modest interest rates and relatively stable currency, all provide a favourable environment for such investments.

It is indicative that today, the Czech Republic hosts more than 100,000 foreign companies, including ABB, Ford, IBM, AstraZeneca, Rockwell, Renault, Siemens, Honeywell, Volkswagen and Amazon.

The relatively stable Czech economy, has helped the investment climate of the Czech Republic, a key element for the country’s growth. Since 1990, significant amounts of foreign direct investments have been flown in the country, setting the Czech Republic as the benchmark for such items among the CEE (Central Eastern Europe). Specifically, from 1993 to 2014, some €100.1 billion (USD $121.4 billion) worth of FDI inflows have been recorded in the country.

In recent years though, apart from the fluctuations recorded (see chart below), the structure of the FDI inflows into the Czech Republic has changed substantially, and investments in R&D and business support services have outpaced those in manufacturing projects.

According to the Czech National Bank 2016 data, the Czech Republic has been granted an “AA-” credit rating by S&P, an “A1” by Moody’s and “A+” by Fitch. Moreover, the Czech Republic was ranked at 11th place in the Ernst & Young European Attractiveness Survey for 2015, which puts the country in the same league with the UK, France and Germany.