Ekonomske študije
Czech Republic

Czech Republic

Population 10.5 million
GDP 19,526 US$
A3
Country risk assessment
A2
Business Climate
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Synthesis

major macro economic indicators

  2013 2014 2015(f)  2016(f)
GDP growth (%) -0.5 2.0 4.2 2.4
Inflation (yearly average) (%) 1.4 0.4 0.4 1.3
Budget balance (% GDP) -1.3 -1.9 -1.7 -1.3
Current account balance (% GDP) -0.5 0.6 1.2 0.9
Public debt (% GDP) 45.2 42.7 40.5 40.5

 

(f) Forecast

STRENGTHS

  • Central geographic position, at the heart of industrial Europe
  • Highly integrated into German production chain
  • Significant industrial potential (38% of GDP)
  • Significant local added value (55% of the value of exports)
  • Robust banking system
  • Low external energy dependence 

WEAKNESSES

  • Decline in the economically active population and low female employment rate
  • Small, very open economy with exports equivalent to 80% of GDP
  • Exports highly specialised geographically and by sector
  • High correlation with German economic cycle
  • Insufficient R&D and transport infrastructures
  • Lack of competition and clientelism

RISK ASSESSMENT

Dynamic activity despite cyclical downturn

Household consumption (48% of GDP) will still make a strong contribution to growth. Employment will continue to rise and the reduction in the availability of skilled workers will encourage wages to rise. In addition, the State is expected to increase retirement pensions and civil service salaries. Conversely, the contribution of investment (25% of GDP) will be well below that of 2015, causing growth to slow.  Indeed, while the property market in the large urban centres like Prague and Brno is expected to benefit from cheap credit, public construction of roads and railways is expected to report a sharp decline following a jump in 2015 with the expiry of the European funds for the 2007-2013 period. Moreover, business investment could slow more significantly than forecast if the Volkswagen scandal widened and reverberated on its local Skoda subsidiary, a major player in the Czech automotive industry (10% of GDP) and the country's leading exporter. However, the final impact on growth is likely to be weak at worst. Despite the modest recovery in Europe (80% of exports), exports of automotive parts and vehicles, machine and electronics (these three segments alone accounting for half of sales) are likely to slow if the central bank abandons the ceiling for the koruna against the euro (CZK 27 for 1 euro since 2013). However, at the same time, the downturn in investment will also curb imports.

 

A satisfactory budget position

Despite higher public-sector wages and pensions, and the increase in resources directed towards early childcare and research, the public deficit, already low, is expected to decline in 2016. This will be made possible by continuing with the fight against tax evasion, by, for example, remote electronic monitoring of cash tills, (temporarily) cutting investment in transport infrastructures, reducing the cost of debt (issuance of 10-year bond at 0.67% in September 2015) and by dynamic consumption. This trend comes after the adoption in 2015 of several budget accountability measures, such as the obligation to take action when the debt burden reaches 55%, the establishment of an independent budget committee and the setting of a structural deficit target of 1% (currently 1.5%) in 2018 sufficient to ensure that the debt, 80% of which is denominated in koruna, stabilises at a modest level. The government of Prime Minister Bohuslav Sobotka has a comfortable parliamentary majority as a result of the October 2013 elections, composed of his own Social Democrat Party (25% of the seats), the centrist ANO Party (24% of the seats) created in 2011 by Finance Minister Andrej Babis as a reaction against the corruption scandals and the centre-right Christian Democrats (7% of the seats), against an opposition split between the right and the communists. The coalition is expected to remain stable until the 2017 elections, with budgetary austerity favoured by the one side accompanied by social advances supported by the others. The adoption of the euro, despite the criteria being satisfied, is not expected in the near term.

 

Large trade surplus

The small current account surplus encompasses a large trade surplus (almost 7% of GDP) and a slightly smaller income deficit linked to dividend repatriation by foreign companies, first among them being Skoda. Tourism income, despite fewer Russian visitors, road transport and IT services contribute strongly to the surplus on services. European funding represents about 0.8% of GDP a year. Foreign direct investments (about 3% of GDP) are largely composed of profits re-invested locally, thus consolidating the position of Czech industry in the European and, in particular, the German production chain, and giving autonomy over management and technological inputs to local subsidiaries. Prague is seeking to attract investment in the disadvantaged regions. FDIs are partially offset by Czech investments abroad. 49% of external debt (68% of GDP at the end of June 2015) is owed by non-financial enterprises and 28% by domestic banks, which reflects the dominance of European banking groups. However, the local subsidiaries have a local deposit base which largely covers their loans and have not been hit by the crisis. 

 

 (Last update : January 2016 ) 

Payment

Cash payments are limited by law by a ceiling of approximately EUR 10000,-.

 

Bank transfers are by far the most widely used means of payment. SWIFT system is fully operable since years, providing an easier, quicker and cheaper method for handling international payments.

 

Cheques for domestic transactions are not widely used. Bills of exchange or promissory notes are commonly used as a security instrument, whose advantage is a possibility to access a fast-track procedure for ordering payment by court (under certain legal conditions).

 

Electronic invoices are widely accepted.

 

Debt collection

 

Best way to ensure recovery is to have and store duly signed written contract and maximum documents related to the business like invoices, confirmed delivery notes (internal delivery notes, CMR´s, CIM´s, bill of lading, air waybill, packing lists etc.), individual orders and any other relevant documentation and correspondence.

 

Amicable phase in debt collection process

Amicable debt collection is recommended, because it remains cheaper for creditor compared to legal proceedings.

Main factors influencing efectiveness in debt collection are age of debt (earlier start of collection => bigger chance for succesful result) and reason of non-payment, while some typical reasons of non-payment with different probability of success are considered: administrative mistake (very high probability of successful collection), secondary payment inability (high probability of successful collection under condition that debtor´s own outstandings will be paid by his customers (debtors), dispute (depends on mutual negotiations and solution), debtor´s intention not to pay (very low probability of successful collection, legal action recommended), insolvency as objective status (negligible probability of successful collection)

 

Interim remedies available in commercial matters

Creditor can lodge a request to the Court to issue a preliminary or interim measure for provisional regulation of relations between parties to contract.

The court has to decide on the matter within 7 days from lodging of the request.

 

Legal proceedings

The costliness and length of an average legal proceedings is comparable to European standards. 

Total costs of legal proceedings consists of court fee, costs of legal representation and costs of translations or expert opinions (when needed).

Average costs including court fee of 4% (with a minimum of 400,- CZK when the plaintiff applies for the electronic payment order; otherwise it is 5% and at least 1000,- CZK), lawyers’ fees approximately 15% and other costs approximately 3%  (expert’s opinion, language translations) are as a total sum 20 -25 % of the nominal value.

  1. Fast track procedure / Order to pay (in Czech “platební rozkaz”)

This is a practical and rather short procedure, provided by sections 172 - 175 of the Code of civil procedure (in Czech občanský soudní řád, hereinafter “CCP”).

The judge convinced of the merits of the claim and without hearing the case, issues a payment order which is served on the defendant, who may either accept it or file a statement of opposition against it within 15 days of its service.

If the debtor opposes the debt, then the process continues as a standard court proceedings (the ordinary or plenary one).

If the legal action duly described and substantiated the creditor’s claim, the court can issue an order to pay, even if the creditor has not requested such an order.

An average time of a decision – minimum 2 months to maximum 6 months, the average time is 3 months.

 

  1. Ordinary procedure / Plenary procedure

The ordinary proceedings takes place after the defendant has disputed the claim in the previous procedure or by applying directly for court.

From the 1st July 2009 onwards (Act No. 7/2009 Coll.) is effective the amendment of the CCP which introduced the electronic in justice, lessened the burden of judges and ensured the prevention of delays in proceedings. All correspondences from Czech authorities to legal persons shall be delivered via electronic means, using data boxes registered with special legal regulation (Act No. 300/2008 Coll., effective as of 1st July 2009).

 

  1. The Enforcement of a Decision / Judgement

Creditor cannot choose whether to obtain satisfaction of his claim by means of judicial enforcement or by enforcement actions of judicial executor (in Czech soudní executor). Judicial enforcement is reserved only for matters specifically listed in the law – e.g. decisions in matter of upbringing of minor children, or decisions of foreign bodies including the EU institutions.  In case of monetary claim stemming from the business relationship has the creditor the only possibility, which is to proceed by means of execution performed by the judicial executor under Act No. 120/2001 Coll. (in Czech exekuční řád, the Execution Act) effective as of 1st May 2001.

Enforcement by judicial executor is considered to be more effective, because he is a private person and his fees depend on his success in enforcement.

A specific fees schedule applies based on the amount concerned by the execution.

 

 

Insolvency proceedings

The insolvency act introduces new methods and faster process, with single proceedings where the court decides on 3 particular solutions: the reorganisation, the debt clearance or in other words discharge of debts, and the bankruptcy. The insolvency petition could be lodged by any creditor, who is able to prove the existence of other creditors or by the debtor himself. Creditors are liable for damages caused by filing a bankruptcy petition where the conditions of insolvency were not met.

The law institutes the insolvency register (in Czech insolvenční rejstřík) – kept by the Ministry of Justice – where all important information on insolvency proceedings is published (sections 419-425 of the Insolvency Act). It also raises transparency on the proceedings.

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