Successfully investing in the Czech Republic


last updated on 28 June 2022 | reading time approx. 3 minutes


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

As expected, the Czech economy stabilised in 2021 compared to 2020, which was marked by the COVID pan­de­mic, and recorded real growth of 3.3 percent. This growth represents the strongest increase since 2017.
Overall, the current economic situation in the Czech Republic looks solid, even though the economy has not yet fully recovered from the consequences of the COVID pandemic. 
In addition, the Czech Republic is currently also struggling with uncertainties such as the war in Ukraine and its aftermath, repeated supply chain problems, and high inflation.
The further development will depend, among other things, on how and how quickly the above-mentioned cir­cum­stances can be solved in Europe and worldwide, as well as on how the main export market in Germany develops. Germany is by far the Czech Republic's most important foreign trade partner. 
As a result of all this, the Czech Ministry of Finance recently lowered its GDP growth expectations for 2022 from 1.9 percent to 1.2 percent.


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 degree of employee knowledge, legal certainty, but also a pronounced flexibility to react to changing market conditions. 
Added to this is the geographical location with good connections to neighbouring countries, which is being further developed on the Czech side. All this contributes to an overall positive investment climate. 
The general political situation in the Czech Republic is currently considered stable.


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

The unemployment rate, which has been very low for years, is one of the biggest challenges in the Czech Republic. It currently stands at 2.5 percent, which is still one of the lowest in the EU. 
In addition, the employers' struggle to outbid each other for skilled workers, which has been going on for years, has resulted in wage cost increases. During the pandemic, the pressure on labour costs was somewhat dam­pe­ned, but currently it is rising again, partly due to rising inflation.
While inflation was still just below 10 percent in January 2022, it has already risen to almost 16 percent in May 2022. The Czech National Bank has already reacted to this development by raising the key interest rate several times. In May 2022, this was raised to 5.75 percent and in June 2022 there was a further increase to 7 percent. 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 abroad in Europe. With the extensive know-how already mentioned and the high level of education of its skilled workers, it 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 one of its priorities in the current situation. 
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 in the country, which has existed for years, will continue, even if probably not with the dynamics and to the extent as before. 
Due to the need for stability in supply chains, there is also a trend towards “nearshoring”, which should cer­tain­ly not have a negative impact on the future prospects of the Czech Republic, especially as additional inves­tors and new companies are likely to be attracted.
We assume that the Czech government will try to maintain the good business climate. However, increased government debt as well as an increase in overall government spending will also be unavoidable in the Czech Republic.
Due to digitalisation and the ever-increasing use of AI, it is to be expected that there will also be a lasting change in the economic environment as a whole. Topics such as data security and data protection will become significantly more important in the future.


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JUDr. Petr Novotný, Ph.D.


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