The Czech Republic’s economy in 2021

As everyone knows, the Czech Republic has experienced serious economic and political changes since the breakup of the Soviet Union and the collapse of the Warsaw Pact.  Change was also accelerated with the partition of Czechoslovakia into two separate, sovereign states in January 1993.

However, it should be noted that the economic experience of the Czech Republic, similar to that of the former East Germany (GDR), was that their economies were closer to western standards of living as a consequence of the closeness of geography, and traditional domestic cultural development.  Nevertheless, there was a meaningful adjustment to a complete market economy.

Economic Overview

Like all world economies, the Czech economy suffered as a consequence of the COVID-19 pandemic.  Growth that had been consistent by to 2020, suffered a loss of fundamentals in domestic need, tax revenues, and exports.  

A decline in all three meant that the Czech economy contracted by a projected 5.6% in 2020 (6.6% according to the Czech government), but this was a slower decline than the EU average (7.4% according to EU forecasts).” 

A positive GDP is expected in 2021, and 2022, but growth is not expected to be back to pre-COVID levels until 2023.

One of the most affected sectors of the economy was automotive industry exports, which is the largest sector of exports in the country.  The high level of integration of the global supply chain in the Czech economy meant that the automotive sector was especially sensitive to disruption.  Additionally, the automotive industry was already experiencing stress, as domestic production of cars had been in decline before COVID.  Producers, principally Skoda had been looking for lower labor costs in other parts of the “new” European states throughout the last decade.  Nevertheless, industry accounts for 32% of GDP and 37% of the labor force, with the automobile industry the largest part of that sector.  Skoda, of course, is nevertheless king of the hill with its main plant in Mladá Boleslav, accounting for around 10% of all exports, and is a source of national pride.  In recent years already Toyota and PSA (Peugeot Citroën) have started to produce cars in the Czech Republic.  Czech cars (trucks, buses, tractors, motorcycles etc.) are the backbone of exports, and together the sector accounts for 80% of all exports.

sets contribute to 56.2% of the GDP and use nearly 60% of the active population. The tourism sector maintains its speed of consistent growth, with the number of guests accommodated in collective accommodation establishments reaching almost 22.0 million in 2019 (+3.5% year-on-year)

Tourism is the number one employer in the Czech Republic.  Prague, clearly a beautiful city, with a great historical center, is one of the premier tourist attractions in Europe.  There have been meaningful efforts to spread the tourist wealth out past Prague and into the countryside, as there is an internal argument that all tourist development is targeted to Prague.  However, for all functional purposes, this effort has been met with limited success.  The tourist money is nevertheless essentially in Prague.

Agriculture remains the smallest portion of the economic sectors.  Agriculture was the sector most affected by the change to a market economy, and to this day nevertheless represents less than 2% of the nation’s GDP.  Wheat, sugar beets, barley, rye, oats, and potatoes are the most important crops. Pigs, cattle, sheep, and poultry are the principal livestock.

Interestingly, although the Czech Republic is best known for its typical Pilsner beers, and beer in general, there is a fairly strong wine industry, chiefly white wines grown outside the Prague tourist bubble.  Bohemia is the center of beer producing agricultural products, principally high-quality hops.  Moravia is the wine-producing vicinity, although vineyards are found in other places.

There is a thriving sector of the economy that has however to make a meaningful statistical mark, and that is the start-up and outsourced tech industry.  This new economic activity is centered in Prague, but not exclusively.  It also tends to be a youth-pushed development and more internationally different.  It can be said that for each job leaving the automotive sector, a new one, however to be counted, is being produced in the tech sector. 

Foreign Trade

Trade accounted for 144.9% of the GDP in 2019.  As noted, the automobile industry is the backbone of trade, both for imports and exports; car and spare part manufacturing accounting for nearly 20% of Czech exports.  Machinery is another major source of Czech exports.  Vehicles and spare parts are also among major imports, second only to telecommunication devices.  Czech Republic’s exposure to global trade dynamics weighed on its exports, which were projected to decline by 12.4% in 2020, at a faster rate than imports but also nearby countries. 

Germany is Czech Republic’s major trading partner, receiving 31.8% of its exports and supplying 24.6% of its imports.  Slovakia is the second top destination for Czech exports, followed by Poland, France and the United Kingdom. China was the second-largest supplier of goods and sets to the Czech Republic after Germany and followed by Poland, Slovakia and Italy.  Becoming a member of the EU has allowed the Czech Republic to go into the shared Market and solidify its position as a low-cost production base. The country now accounts for 80% of its trade with OECD countries (80% of which with the EU). 

The country has had a structurally positive trade balance since entering the EU, a trend that is expected to continue. Exports assistance from the good performance of the German economy, growing exports of motor vehicles and parts, computers and electrical equipment, and by a smaller deficit in oil and gas trading (lower energy commodity prices). Czech trade surplus grew in 2019 as imports fell faster than exports. 

Resources and strength

Although reserves are limited, the Czech Republic produces meaningful quantities of bituminous, anthracite, and brown coal. Most of the bituminous coal is derived from the Ostrava-Karviná coalfield in the northeast, although it is also mined near Kladno in the Plzeň basin, in addition as near Trutnov and Brno. A high proportion of the bituminous coal is of coking quality. 

The main areas of brown-coal mining are in the extreme west around Chomutov, Most, Teplice, and Sokolov. Brown coal is used in thermal strength stations, as fuel in the home, and as raw material in the chemical industry. Small quantities of petroleum and natural gas are produced near Hodonín on the Slovak border. Pipelines import Russian oil and natural gas, the latter supplementing existing coal gas supplies. The completion in the late 1990s of an oil pipeline that transports oil from the port of Trieste, Italy, allowed the Czech Republic to be less reliant on Russian oil supplies. Nuclear strength plants located in Dukovany and Temelín, in addition as nuclear strength from Slovakia, have reduced the country’s dependence on coal only slightly; about three-fourths of the Czech Republic’s electricity is derived from fossil fuels. Source – Britannica

Other Questions

One sobering fact is that the population of the Czech Republic is aging rapidly, with increased demands on the state pension system, and it projects implications for the demographics of the workforce.

The healthcare system recovered quickly from the pre ‘90’s system and was privatized successfully in the mid-1990s.  The healthcare system responded in addition as any country to the COVID pandemic.

It can be said that as a generalization, the Czech Republic is Prague, and then the rest of the country.  Prague is nevertheless the principal source of economic activity.

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