The Czech Republic is an open and small economy in Central & Eastern Europe. The country’s skilled workforce and prudent monetary policies have attracted a large number of Western European investors. It’s a landlocked country so most of the foreign trade is limited to only European Union, Germany being the largest trading partner of Czech Republic.
The Czech economy is mostly depended on exports; therefore, the economic conditions in its export markets affect the country’s financial prospects. It was clearly witnessed during the European recession in 2008. The country’s exports plunged, industrial production saw a double digit fall, and the overall economy shrank 4.1% in 2009. But almost every economy in the world suffered during the 2008 recession, not just the Czech Republic.
The country’s woes with a budget deficit started during the boom years 2000-2007. In this period, the country showed a deficit of -3% to -6% every year. Already crippled by high budget deficit, Czech Republic entered the economic crisis. The 2010 parliamentary elections gave the country a much needed boost by reforming the financial policies. The newly-elected coalition government has set a target to reduce the budget deficit to 3% of GDP by 2013. Marching on its mission, the government cut investment spending, public sector wage bill and benefits by 10% in 2011.
Despite all these efforts, according to the IMF data, the country’s debt-to-GDP ratio is likely to keep rising till 2017. However, the country has demonstrated significant progress compared to any other European nation from 2000-2010. In this period, its per capita GDP grew to 78% of the EU-27 level in 2010, which was just 68% in the year 2000. However, the Czech republic has some downsides too. The aging population (above 65 years) in the country is fast increasing and is likely to reach approximately 60% of the total population in 2060 from 20% in 2008.
It is more investment-friendly than other European countries as the average wages are 45% less than that in Eurozone. Czech Republic has lower tax rates, flexible labor laws and regulations on par with European standards.
Some of the strongest points about the Czech Republic are its strong financial sector, substantially underleveraged private and public sector. These qualities are present in only the ideal states, and the increased investment by Western European companies in the Czech Republic is revealing.