Successfully investing in the Czech Republic

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last updated on 27 May 2020 | reading time approx. 4 minutes

 



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

In 2019, the Czech economy will have grown continuously for the sixth consecutive year, by 2.5 per cent year-on-year. Before the outbreak of the Covid-19 pandemic, however, a slight slowdown to about 2 per cent was expected for 2020. The effects of the above pandemic are addressed below.

 

As wages continue to rise and the labor market is virtually empty, it can be assumed that private consumption will remain the driving force of overall economic growth, despite a slightly higher inflation rate of 2.6 per cent compared to the previous year. This is also indicated by the Czech online trade, which is expected to grow the fastest in Europe in 2019. The Czech Republic is also the leader in terms of purchases in e-shops made via smartphones.

 

However, Czech foreign trade is also an integral part of the Czech economy. Germany is and remains the Czech Republic's most important trading partner, closely followed by Slovakia in second place. Here, the stagnating automotive industry could cloud the positive trend somewhat.

 

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

The location factors in the Czech Republic were and still are very good. The positive general conditions that have existed for years are continuing. These include: high productivity, a high degree of employee retention, legal security, a stable political situation, but also a pronounced flexibility to react to existing trends and necessities in the market – plus the geographical location with good connections to neighboring countries, which were further expanded in 2019. All this contributes to an overall positive investment climate in the Czech Republic.
  

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

The continuing decline in the very low unemployment rate – in the second quarter of 2019 it was just 1.9 per cent – threatens to gradually overheat the Czech labour market. The employers' battle to outbid each other is unmistakable in many places. In addition, the minimum wage in the Czech Republic rose to 14,600 Czech koruna (approx. 560 Euro) on 1 January 2020, and the average wage has also been rising for years, reaching 34,105 Czech koruna (approx. 1,320 Euro) in the second quarter of 2019. The shortage of skilled workers and the resulting increase in unit labour costs is also a growing problem. On the other hand, older workers also have very good opportunities on the Czech labour market – which is not a matter of course within the EU.

 

The Brexit will also show an impact in the Czech Republic, especially since the UK is its fifth most important sales market. According to the Chamber of Commerce of the Czech Republic, the reasons for possible losses of the economy due to the Brexit are primarily to be seen in the forthcoming customs duties and the weakening of the pound. As a result, British companies are purchasing fewer goods from abroad. “Česká spořitelna a.s.” estimated the overall effect of a hard brexit at approx. 1.1 per cent of Czech GDP.

 

As the automotive industry is also heavily affected by the Brexit, it is likely that the Czech Republic will also be affected, as the automotive industry accounts for a large part of the economy.

   

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

The country has indeed been a victim of its own success for years. It is one of the top addresses when it comes to expanding investments into other European countries. The Czech government is trying to counteract the lack of skilled workers with various measures. These include relaxing visa requirements for certain neighboring non-EU countries, such as Ukraine and Belarus. So far, these measures have had only moderate success and are designed for the long term. Thought is also being given to reforming the vocational school system, which is in urgent need of reform in the Czech Republic.

 

In your opinion, how will the Czech Republic develop?

As an investment location, the Czech Republic is likely to remain at the top of the scale of the most popular European countries in Central and Eastern Europe. The business climate should also remain strong.

 

In recent years, the Czech Republic has seen a veritable boom in start-ups, with more and more young people opting for self-employment and setting up their own businesses. The Czech government wants to support them. According to the Ministry of Industry and Trade of the Czech Republic, the start-up scene is to be further promoted. The politicians promise subsidies of several billion Czech koruna. The Czech minister of economy Karel Havlíček wants to invest the money especially in infrastructure. New incubators (incubators that support founders and young entrepreneurs) and so-called hubs (premises for start-ups) are to be created. Furthermore, the cooperation between universities and young entrepreneurs is to be intensified. It is planned that Czech universities will set up their own incubators to supervise and support students and prospective young entrepreneurs. In principle, it would therefore be expected that the stable economic growth that has existed for years will continue.

 

However, the measures taken by the Czech government since 12 March 2020 to contain the Covid-19 pandemic must not be ignored. The government has initially declared a state of emergency, closed national borders with neighboring European countries and at the same time adopted a number of serious measures that will inevitably have an impact on the economy and the investment climate.

It is currently not possible to quantify the exact economic damage that will be caused by the Covid-19 pandemic. At best, rough estimates can be made, depending on how long the measures and related restrictions will be maintained in the Czech Republic, as well as in Europe and worldwide, and on how the post-crisis situation will develop. If the situation eases in May 2020, experts expect GDP to fall by around 4 per cent compared to the previous quarter. Should the restrictions last longer, this forecast could deteriorate considerably.

 

According to Tomáš Holub, member of the Czech National Bank (CNB) board, the CNB wants to maintain the financial stability of the Czech Republic in these difficult times by all means, if necessary with government bonds, securing the liquidity of other banks in the Czech Republic, etc. Other measures have already been taken to this end, such as deferring the repayment of loans, lowering interest rates when taking out new loans, etc.

 

Measures have also been taken by the Czech government itself. In this context, we would like to mention the “Antivirus Program”, which we have already mentioned several times in detail in our article series to the Covid-19 pandemic.

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