Czech Economy: Development and Prospects
20.05.2013 / 05:35
The Czech Republic is small and highly open economy where foreign trade plays a vital role in accelerating economic growth and convergence to the living standards of the core EU countries
The Czech Republic is small and highly open economy (exporting 3/4 of its output) where foreign trade plays a vital role in accelerating economic growth and convergence to the living standards of the core EU countries. It has returned to growth after a recession in 2009, though this year might witness a slight slow-down (due to depressed external demand).
Today its per capita GDP stands at 80% of the EU average. Although the Czech service sector is the country’s largest, it also has a strong manufacturing sector, which at nearly 35% of GDP. The Czech production meets the requirements of the European standards. The country as a whole enjoys a large trade surplus, although the current account is just slightly in deficit due to foreign investor profit repatriation. The economy is also very closely linked to the German economy that is both a key source of finance and a vital market for Czech goods.
The Czech Republic economy strongly relies on manufacturing exports, the car industry is particularly important in this regard. The computer manufacture sector is also important, and there is a sense that this is a somewhat more diversified and robust sector.
The foreign owned sector of the economy has been the most dynamic and profit levels are highest in it. Foreign owned firms, however, suffered the most in the global recession given their strong orientation towards export markets.
Increasingly, the Czech Republic is recognized as the optimal business environment from which to better serve international customers. This is a consequence of several factors the most notable being the sustained enhancements to the business environment by the Czech Government and the ability of the country’s pre-eminent natural resource, intellectual capital, to respond to the needs of knowledge-based and innovation-driven businesses.
Europe is the most important trade partner for the Czech Republic, followed by Asia. Imports from Asia are growing and Asia’s percentage share of both Czech imports and exports are rising. Czech exports to Asia are also on the rise, and Czech companies believe that Asia will be an ever-more important market in the future. The Czechs enjoy a trade surplus with Europe but are in a significant trade deficit with Asia. Over half of this trade is with China, while India, Japan and Korea are also significant Asian trading partners.
The Czech economy still performs well vis-à-vis abroad albeit the turnover of its trade in goods is losing momentum. The rate of exports decelerated to 8.9% for the first eight months of the year and left the double-digit territory, within which it had been since the beginning of 2010. With the current 4% rise in imports, the trade balance surplus again improved. As usual, the highest surplus was generated in trade with Germany, as opposed to the highest deficit in trade with China. As concerns export commodities, the trade in machinery and means of transport was dominant again, with nearly a 55% share.
Machinery and electronics components for manufacturing constitute a very important share of imports from Asia, although the public is more aware of household appliance imports. Many Asian imports are subsequently included in Czech exports as finished products. Most of these exports, however, head for European rather than Asian markets.
Nowadays, industry is still very important to the economy of the Czech Republic, industry stands at 35 % (62,3 % services, 2,8 % agriculture). Over 40 % of all economically active citizens work in the industrial sector.
The key sector of the Czech economy is industry, which generates almost 1/3 of its output. Industrial production in the Czech Republic has a very long tradition. In the Austrian-Hungarian period, the Czech lands used to be an industrial base for the whole empire – nearly 70% of the industrial production of the monarchy was concentrated in Czech Lands. With independent Czechoslovakia, Czechoslovakia was counted among the world industrial leaders.
The main pillars of the Czech industry are engineering, mining, chemistry and food production, energy, civil engineering and consumer industry.
The engineering is ranked among the most traditional industrial branches in the Czech Republic. Its most important part is the automotive industry, which is a very strong exporter and employs over 120 thousand people. In 2011, 54.2% of export came from automotive industry. The most significant producer of automobiles is Skoda Auto. Particularly growing is especially the automotive industry which maintained its crucial share of more than 25% in total sales. Industrial output has increased by 0.6% since the beginning of the year.
- Automobiles: Skoda Auto, TPCA Kolin, Hyundai
- Large vehicles and trucks: Tatra Koprivnice, Avia Ashok Leyland Motors
- Trolleybuses, tramways, metro, engines: SKODA Transportation
- Tractors: Zetor Brno
- Motorcycles: Jawa Tynec nad Sazavou
- Airplanes: Aero Vodochody, Let Kunovice, Moravan Otrokovice
- Bearings: ZKL Bearings
- Hydraulics: Jihlavan
The mining industry is connected with the engineering industry. It is mostly concentrated in the regions with raw material deposits (black coal, limestone), such as Ostrava. Iron ore, the core raw material for steel production, is imported.
- Arcelor Mittal Ostrava, Evraz Vitkovice Steel, Trinecke zelezarny
The chemical industry is mostly concentrated in the region of northern Bohemia. The Moravian chemical area is mostly located along the central and lower part of the Morava River. Crude oil is processed in the areas close to the pipeline (Litvinov, Kralupy nad Vltavou).
- Petrochemicals: Unipetrol – PKN Orlen, Ceska rafinerska, Benzina Praha
- Chemicals: Agrofert Holding, Spolana Neratovice, Lovochema, Spolchemie, Setuza, Syntezia, Semtex
- Rubber industry: Kaucuk Kralupy nad Vltavou, Barum, Gumotex, Gumarny Zubri, Rubena
- Plastic materials: Fatra, Technoplast, Plastimat
- Pharmaceutical and cosmetic industry: Zentiva, Galena, Chemopharma, Dermacol
The food processing industry is spread throughout the whole territory of the Czech Republic. Beer production remains in the leading positions. Every year, more than 2 million hl of beer is exported.
- Meat products: Agrofert Holding, Kostelecke uzeniny, Hame Babice, Krahulík, Agropol
- Milk production: Olma Olomouc, Mlekarna Kunin, Madeta, TPK-PRIBINA
- Beer: Pilsner, Budvar Budweiser, Staropramen, Velkopopovicky kozel, Krusovice
- Spirits and liquors: Stock Plzen, Becherovka, R. Jelinek
- Wine: Bohemia sekt Stary Plzenec, Znovin Znojmo, Vinselekt Michlovsky
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