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Czech economy contracted in 2012

(This article expired 31.08.2014.)

Czech gross domestic product (GDP) contracted by 1.2 % in 2012 against the previous year. GDP was decreasing in all quarters of 2012. The domestic economy is in the longest recession since 1997, when the fall of economy lasted for 4 consecutive quarters as well.

The USD 217 billion economy is suffering from weakening domestic demand. Household spending fell 3.5 %, the first decline since 1998, and business spending dropped 1.6 % in 2012 due to government austerity measures and the euro area’s debt crisis.

Foreign trade showed positive contribution to the GDP in 2012 as exports grew faster than imports. Exports were up by 4.2 %, the only really bright spot in the Czech economy, and a testament to continued demand for Czech industrial production despite the slump in the eurozone.  

The central bank cut borrowing costs three times in 2012 to effectively zero and it is navigating uncharted territory. The bank’s forecast shows further policy easing will be probably needed this year.