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Successfully investing in the Czech Republic

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last updated on 16 June 2023 | reading time approx. 4 minutes

 



How do you assess the current economic situation in the Czech Republic?

The Czech economy continued to stabilize in 2022 and recorded real growth of 2.5 percent.[1] However, in the cur­rent environment, growth in 2023 is expected to be lower than in 2022. As a result of all this, the Czech Ministry of Finance has recently estimated a cautious 0.1 percent GDP growth forecast for 2023.

Overall, the current economic situation in the Czech Republic still looks stable and solid, even though the local economy is also struggling with rising energy costs.

In addition, high inflation amounting to 12.8 percent in April 2023 with a slight downward trend and the strong Czech crown are noticeable in the Czech Republic. The Czech crown has appreciated significantly against the euro, especially in 2023; in May 2023 the exchange rate was 23.5:1.[2]

The further development of the economic situation in the Czech Republic will depend, among other things, on how and how quickly the situation in Europe and worldwide will stabilize, as well as on how the main export market in Germany develops. Germany remains by far the most important foreign trade partner for the Czech Republic, followed by the Slovak Republic and Poland.[3]

How would you describe the investment climate in the Czech Republic? Which sectors offer the largest potential?

The location factors in the Czech Republic remain good. Investors can continue to rely on the existing positive framework conditions - i.e. high productivity, extensive know-how, a high level of employee training, a reliable level of legal certainty, but also a pronounced flexibility to react to changing market conditions.

Added to this is the geographical location with good connections to neighboring countries, which was further expanded on the Czech side in 2022. All this contributes to an overall optimistic investment climate.

The general political situation in the Czech Republic can also be considered stable at present. The five-party coalition around Prime Minister Petr Fiala is currently experiencing little friction in its activities. The new presi­dent Petr Pavel. elected this year on 9 March, will likely underpin this stability. This Czech politician is the fourth president of the Czech Republic. He is a retired general of the Czech Armed Forces, who was Chief of the Czech General Staff until 2015 and then Chairman of the NATO Military Committee until 2018.

What challenges do German companies face during their business ventures into the Czech Republic?

The unemployment rate, which has been very low for years, and the resulting scarcity of skilled workers is still one of the biggest challenges in the Czech Republic. Last year the unemployment rate was only 2.2 percent.[4] It is currently around 3.9 percent, which is still one of the lowest in the EU.[5]

The struggle of employers to outbid each other for skilled workers, which has been going on for years, has also led to increases in wage costs. The pressure on wage costs has eased somewhat in the meantime, but this year it is rising again, partly due to high inflation, which is one of the highest in Europe and remained at 12.7 percent in April 2023[6], a very high level by European standards

The Czech National Bank has already reacted to this development by raising the key interest rate several times. In 2022, it was raised to 7 percent[7] at which rate it has remained unchanged;[8] however, there are currently no signs of a further increase. It remains to be seen how the situation will develop.

How does the Czech Republic address the shortage of skilled workers?

The Czech Republic was and still is a good address when it comes to expanding investments into other Euro­pean countries, especially from German-speaking countries. With the extensive know-how already mentioned and the high level of education of its skilled workers, the Czech Republic is among the leaders in Europe. 

The Czech government is trying to counteract the shortage of skilled workers with various measures, even if this is not currently one of its priorities. The planned reform of the vocational school system, which is urgently needed in the Czech Republic, is still pending.

In your opinion, how will the Czech Republic develop?

Leaving the current uncertainties aside, the country is likely to remain at the top of the scale of the most pop­ular European countries in Central and Eastern Europe as an investment location. And this is not least due to the above-mentioned ability to react quickly and flexibly to existing trends and necessities in the market.

Basically, it is to be expected that the stable economic growth that has existed in the country for years will con­tin­ue, even if not with the dynamics and to the extent as in the years before Corona.

Due to the need to ensure stability in supply chains, the trend towards "nearshoring" has become even more entrenched. This should certainly not have a negative impact on the future prospects of the Czech Republic as an investment location, especially as it is likely to attract additional investors and new companies.

We assume that the Czech government will try to maintain the good business climate. However, increased pub­lic debt and an increase in general government spending will also be unavoidable here.

Due to digitalization and the ever-increasing use of AI, it is also to be expected that there will be a lasting change in the economic environment as a whole. Topics such as data security and data protection are already significant and will become even more important in the future, as will ESG.

[1] See for example: https://www.destatis.de/Europa/DE/Staat/EU-Staaten/Tschechien.html
[2] In May 2023, the exchange rate of the Czech koruna against the EURO was (23.5:1); See here: https://www.cnb.cz/cs/financni-trhy/devizovy-trh/kurzy-devizoveho-trhu/kurzy-devizoveho-trhu/grafy_form.html
[3] See among others: GTAI Germany Trade & Invest zur Tschechischen Republik, Stand: November 2022
[4] See here: https://www.czso.cz/csu/czso/employment_unemployment_ekon
[5] For the development of the unemployment rate in the Czech Republic in recent years and the forecast until 2027, see, among others: https://de.statista.com/statistik/daten/studie/17307/umfrage/arbeitslosenquote-in-tschechien/
[6]See here: https://www.czso.cz/csu/czso/inflation_consumer_prices_ekon
[7] See here: https://www.handelsblatt.com/finanzen/geldpolitik/kampf-gegen-inflation-tschechische-nationalbank-erhoeht-leitzins-auf-sieben-prozent/28445726.html
[8] See here: https://de.investing.com/economic-calendar/czech-interest-rate-decision-457 and https://www.oenb.at/isaweb/report.do?report=10.4

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