The Czech Republic is a medium-sized, open economy with 78 percent of its GDP based on exports, mostly from the automotive and engineering industries. According to the Czech Statistical Office, most of the country’s exports go to the European Union (EU), with 31.8 percent going to Germany alone. The United States is the Czech Republic’s largest non-EU export partner. In 2019, the Czech banking sector remained healthy and the economy had a stable growth of 2.4 percent of GDP. Due to COVID-19, the Czech government predicts a 2020 GDP decline of 5.6 percent, while the International Monetary Fund predicts a 6.5 percent contraction.
The COVID-19 outbreak and resulting economic shutdown caused the Czech crown (CZK) to significantly depreciate in Q1 2020 from CZK25 to CZK27.3 per EUR and from CZK22.9 to CZK24.9 per USD from February to March 31. The crown is fully convertible, and all international transfers of investment-related profits and royalties can be carried out freely. While the Czech Republic meets the Maastricht criteria for adoption of the euro and agreed to join the Eurozone under the country’s EU accession agreement in 2004, the Czech government has said it will not seek to join the common currency in the next few years, a position that has broad political and public support.
The government has taken great strides since the fall of communism to open the market to competition and privatization, but the Czech Republic still lacks robust enforcement of anti-trust violations. The Czech Republic is committed to improving transparency and reducing corruption, and protects and enforces intellectual property rights.
The government amended the bankruptcy law June 1, 2019 and again March 31, 2020. The June 2019 amendment expanded the categories of debtors qualified for debt discharge. The latest amendment put a moratorium on filing of bankruptcy against all companies by creditors until the end of August 2020. The government passed the amendment to protect from bankruptcy businesses affected by COVID-19. The amendment also suspended companies’ obligations to file for bankruptcy until February 2021 if they are not able to meet their liabilities. The Czech Republic ranked 16th in the 2020 edition of the World Bank’s Doing Business Report for ease of resolving insolvency.
There are few restrictions on foreign investment except in certain sectors that require access to sensitive information. The Czech government supports legislation formalizing a procedure to review foreign investments that risk compromising national security. The bill is pending debate and approval by both houses of Parliament. If passed as drafted, the law would allow the government to screen inbound foreign direct investment (FDI) from non-EU entities. The Czech Republic has taken strides to diversify its traditional investments in engineering into new fields of research and development (R&D) and innovative technologies. EU structural funding has enabled the country to open a number of world-class scientific and high-tech centers. EU member states are the largest investors in the Czech Republic.
The Czech Republic fully complies with EU and the Organization for Economic Cooperation and Development (OECD) standards for labor laws and equal treatment of foreign and domestic investors. While wages continue to trail those in neighboring Western European countries (Czech wages are roughly one-third of comparable German wages), they have risen about 7 to 8 percent annually over the past two years, according to the Czech Statistical Office. Some experts believe the economic decline from the COVID-19 pandemic will dampen wage growth. The country was facing labor shortages in 2019 with the unemployment rate hovering below 3 percent – the lowest in the EU. However, due to the economic impact of COVID-19, the Czech Ministry of Finance predicts a rise in unemployment to 3.3 percent in 2020. The 1992 U.S.-Czech Bilateral Investment Treaty, signed with the former Czechoslovakia, provides for international arbitration of investor–state disputes for foreign investors.
|TI Corruption Perceptions Index||2019||44 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2019||41 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2019||26 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||6,737||http://apps.bea.gov/
|World Bank GNI per capita||2018||20,240||http://data.worldbank.org/