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Czech Republic - Overview

Contents extracted from the comprehensive atlas of international trade by Export Entreprises

Introduction

Capital:: Prague
Area:: 79 km2
Total Population:: 10.511
Annual growth rate:: 0.00%
Density:: 136.00/km2
Urban population:: 73%
Population of Prague (1.900), Brno (370), Ostrava (310), Pilsen City (160), Olomouc (100)
Official language: Czech, which belongs to the group of Slavic language, and as a West Slavic languages, it is very similar to Slovak.
Other languages spoken: English (according to a recent survey, 25% of Czechs speak some level of English, and 10% are considered fluent), German
Business language: English
Ethnic Origins:: Czech 90,4%, Moravian 3,7%, Slovak 1,9%, other 4%.
Beliefs: Predominately atheistic (68 % of population), Christian 92% of believed population- Catholic(83 %), Protestant (9%).
Telephone codes:
To make a call from: 0
To make a call to: +420
Internet suffix:: .cz
Type of State::
Republic state based on parliamentary democracy.
Type of economy::
High-income economy, OECD member, Ex-Transition country, Emerging Financial Market
An economy based almost exclusively on the automobile industry and tourism.

Economic overview

The Czech Republic's economy is one of the most developed in Central and Eastern Europe, but it is very vulnerable to external shocks due to its dependency on exports and FDI inflows. The year 2013 was the third consecutive year of the economy undergoing a recession (--0.4%), the result of the government's austerity policy. A resumption of growth is expected in 2014 (1.3%).

After four consecutive years of severe austerity, the economy plunged into a deep recession and the citizens' morale is at a low. Both household consumption and state investment collapsed, a decline in purchases lead to a decline in industrial production, the levels of national debt continue to soar, and the budget deficit remains at around 3% only at the price of a VAT increase, lower salaries of civil servants, freezing pensions and under-investment in key sectors such as education, research and infrastructure. The National Bank devalued the national currency by 5% and has massively intervened on the exchange market in order to avoid deflation. Due to a policy of austerity which many consider excessive, the public deficit has been reduced to under 3% of the GDOP and the debt is less than 50% of the GDP. The 2014 budget plans of increasing the deficit, yet keep it under the 3% limit set by the EU. The government has been trying to boost consumption and exports. Its long-term goal is to make the Czech Republic one of the world's twenty most competitive economies by 2020, by developing infrastructure, strengthening institutions and governance, reforming the education sector, increasing labor market flexibility and improving the business climate. Export diversification is also part of the strategy.

The unemployment rate, which has increased under the effect of the global crisis, stands at around 10% of the active population. Real income dropped by 2% in 2012.

Main industries

The agricultural sector went through a serious crisis in the 90s and, even today, it is still heavily subsidized.  It generates approximately 2% of the country’s GNP and employs more than 3% of the active population. The main agricultural products are sugar beets, potatoes, wheat, barley and hops. 

The production sector is mostly private, it accounts for almost 40% of the GNP and employs 40% of the active population. The growth at the level of performance was parallel to the increase in manpower's productivity. One of the main manufacturing sectors is the auto industry, with Skoda (Volkswagen company). Since 2005, other foreign investors, such as Toyota and PSA, have also been manufacturing cars in the Czech Republic.  However, this sector has now reached a saturation point. Nearly 10,000 jobs were eliminated in 2009 because of the international crisis. The textile sector is becoming very dynamic. 

Services contribute to 60% of the GDP and employ almost 60% of the active population. The tourism sector is booming, thanks to the city of Prague, in particular, which is a very attractive tourist center.

Foreign trade overview

The Czech Republic's economy is very open to foreign investment. Trade represented over 140% of the GDP in 2010-2012. Its membership to the European Union has allowed the Czech Republic to enter into the common market and to consolidate its position as a low-cost production base. 80% of the country's trade is now conducted with the OECD countries (of which 80% is with EU countries). A certain number of agreements made it easier to trade with neighboring countries (CEFTA).

The country has recorded a structural positive trade balance since it became a member of the European Union, a trend that should continue. Exports benefit from the good state of the German economy, which accounts for a third of the country's foreign trade. In 2013, the trade surplus increased with exports rising by 2.8% compared to 2012 and imports increasing by 1.4%.

FDI

According to  CzechInvest, Investment and Business Development Center, the Czech Republic ranks first among the Central and Eastern European countries in terms of not only FDI stock but also FDI inflow per capita. This situation can be explained by the creation of investment incentives, by the presence of a skilled and inexpensive manpower and also by the natural advantages of the Czech Republic, such as its location in the heart of Central Europe. A change in FDI direction can be observed in the Czech Republic, from the manufacturing industry to the "strategic services centers". 

After reaching a record level in 2012 (highest since 2005), FDI dried up in 2013 and should again resume an upward trend.

The European Union and the United States are the two main foreign investors in the Czech Republic.

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