Ekonomske analize
Czechia (Czech Republic)

Czechia (Czech Republic)

Population 10.7 million
GDP 23,539 US$
A4
Country risk assessment
A2
Business Climate
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Synthesis

major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 3.2 2.3 -7.1 3.2
Inflation (yearly average, %) 2.0 2.6 3.3 2.2
Budget balance (% GDP) 0.9 0.3 -6.3 -4.4
Current account balance (% GDP) -0.8 -0.1 -2.4 -1.3
Public debt (% GDP) 32.1 30.2 38.2 40.8

(e): Estimate (f): Forecast

STRENGTHS

  • Central geographic location at the heart of industrial Europe
  • Tightly integrated in the international production chain, and more particularly the German one
  • Preferred destination for FDI in Central Europe
  • Significant industrial potential
  • Robust public accounts and banking system

WEAKNESSES

  • Small, open economy: exports account for 80% of GDP
  • Dependent on European demand: 64% of exports are to the Eurozone, one third to Germany
  • High foreign intermediate inputs in exports and low contribution of services to locally value-added in exports
  • Automotive sector occupies a large share of the economy
  • Lack of rapid transport links with the rest of Europe
  • Ageing population and shortage of skilled labour

RISK ASSESSMENT

Recovery could be limited by a deteriorated labour market

The Czech economy has entered 2021 while being affected by the second wave of the COVID-19 pandemic, which is stronger than the first wave. Indeed, the total number of Czechs diagnosed with coronavirus exceeded a half of million at the beginning of December 2020, which represents around 5% of the population, and over 8,500 people died from the disease. The new daily cases per 1 million inhabitants peaked at the beginning of October 2020, with the highest level in the European Union. Despite the easing of lockdown measures, domestic demand, still affected by the pandemic, is expected to remain sluggish in early 2021, with an increased propensity to save. Household consumption will recover later on, but the scale of the improvement will be subject to developments on the labour market. The unemployment rate increased to 2.9% in October 2020, from 2.0% a year before, but remained the lowest in the European Union. Once the stimulus measures phase out, the labour market is likely to worsen due to higher unemployment and sluggish wage growth. Investments will recover this year, after the slump in 2020 because of high uncertainty, lockdowns and supply chain disruptions. The rebound in investments will be driven mostly by the public sector, while companies are likely to use their spare capacities at first and will then decide to conduct investments, if the recovery of demand justifies it. The manufacturing sector will still be driven by the automotive industry and the activity in the German economy. Both factors remain crucial for Czechia, as exports to Germany reach nearly one-third of the total. The automotive sector generates over 9% of total gross value added, and accounts for over 8% of total employment and above 26% of exports.

After series of interest rate hikes in 2017-2019, the pandemic forced the central bank to cut interest rates in 2020. It made the cost of lending more attractive, but also resulted in a depreciated currency that supports Czech external competitiveness.

 

Fiscal position still in deficit

The budget balance will improve in 2021. However, it is not expected to come back to a surplus, which had been recorded before the pandemic. Government support measures have led to deteriorated public finance figures and their possible extension could affect the outcome of the budget balance. The general government debt is likely to cross the 40% of GDP level, but it will remain one of the lowest in the European Union.

The current account deficit increased because of slumping exports. The Czech economy is highly open with various companies participating in global value chains. Moreover, challenges in the automotive sector and a drop in demand for cars hit the Czech economy due to its strong dependence on this sector. By contrast, these factors are likely to benefit Czech exports this year, with the revival of global trade and improving perspectives for the automotive industry. Export dynamics will be closely linked to the performance of Germany as the main trading partner.

 

ANO remains in power

The ANO 2011 (centre-right) movement led by Andrej Babis won the October 2017 elections by a large margin, obtaining 30% of the votes cast and 78 out 200 seats in parliament. The recent cabinet consists of the coalition between ANO and the Social Democratic Party (CSSD). In the latest Senate elections held in October 2020, opposition parties succeeded to get control of the chamber. Although the upper house is not powerful, elections showed that Czechs are not satisfied with the management of the health crisis and unpopular restrictive measures. However, the turnout in the second-round ballot was low (below 17%) and general elections scheduled for October 2021 could result in a prolonged support for ANO, especially if Czechia goes well through the pandemic.

 

Last updated: February 2021

Payment

Czech law limits cash payments to a maximum of CZK 270,000 (approximately EUR 10,000). Purchasers who wish to make payments that exceed this limit must pay the entire sum via wire or bank transfer. Bank transfers are by far the most widely-used means of payment. The SWIFT system is fully operable in the Czechia, and provides an easier, quicker and cheaper method for handling international payments. The Czechia is part of the SEPA system, simplifying bank transfers inside the European region.

Cheques for domestic transactions are not widely used. Bills of exchange and promissory notes are commonly used as a security instrument, which present the purchaser with the option to access a fast-track procedure for ordering payment by court (under certain legal conditions). Electronic invoices are widely accepted. 

Debt Collection

To ensure the recovery of a debt in case of default, creditors should keep all documentation related to the transaction. This includes the original (written) contract, any documents related to the transaction (e.g. invoices and confirmed delivery notes), individual orders, and any other relevant documentation and/or correspondence. The main factors influencing effectiveness in debt collection are the age of the debt (the earlier the start of collection, the larger the chance for a successful recovery) and the reason for non-payment.

 

Amicable phase

Amicable debt collection is recommended, because it remains cheaper for creditor compared to legal proceedings. Amicable settlements are also enforceable in court.

 

Legal proceedings
Fast-track procedure / Order to pay

Platební rozkaz is a practical and rather short procedure, outlined in sections 172-175 of the Code of Civil Procedure (občanský soudní řád, CCP). The judge, convinced of the merits of the claim and without hearing the case, issues a payment order which is served to the defendant, who may either accept it or file a statement of opposition against it within fifteen days of its service. If the debtor opposes the debt, then the process continues as standard court proceedings.

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. It takes on average three months for a decision to be made, ranging from a minimum of two months to a maximum of six months.

 

Ordinary procedure

Ordinary proceedings takes place after the defendant has disputed the claim during the platební rozkaz or by filing a dispute directly via the courts. Ordinary proceedings are partly in writing (parties filing submissions accompanied by all supporting case documents), and partly oral (both creditors and debtors present their cases during the main hearing). In practice, ordinary proceedings typically last from one to three years before the court renders a final and enforceable judgement.

On July 1, 2009 (Act No. 7/2009 Coll.), the CCP was amended to introduce more digital options in the justice process, so as to lessen the burden of judges and ensure the prevention of delays in proceedings. Since this amendment, all correspondence from Czech authorities to legal entities is delivered electronically via registered data boxes with special legal regulations (Act No. 300/2008 Coll., effective as of July 1, 2009).

Enforcement of a Legal Decision

Judicial enforcement is reserved only for matters specifically listed in the law. Monetary claims stemming from business relationships are enforced by a judicial executor (soudní executor) under Act No. 120/2001 Coll. (exekuční řád, the Execution Act). Enforcement by judicial executor is considered to be more effective, because the executor is a private-sector entity whose fees depend on a successful enforcement. A specific fees schedule applies based on the amount concerned by the execution.

As part of the EU, enforcement of foreign awards issued by an EU member state will benefit from advantageous enforcement conditions, such as the EU Payment Order or the European Small Claims procedure. Foreign awards rendered by non-EU countries can be recognized and enforced, provided that they have gone through the exequatur procedure under the Czech Private International Law and Procedure Act. 

Insolvency Proceedings

An insolvency petition can be lodged by either debtors themselves or their creditors, but a creditor must provide unambiguous evidence to support its claim, with one of the following:

  • an acknowledgement of debt (with the certified signature of the debtor or its representative);
  • an enforceable judgement;
  • an enforceable notary act;
  • an enforceable executor´s act;
  • confirmation of auditor or expert witness or tax advisor.

The creditor must in addition prove the existence of other creditors. Creditors are liable for damages caused by filing a bankruptcy petition where the conditions of insolvency were not met.

All insolvency petitions are recorded in an insolvency register (insolvenční rejstřík) kept by the Ministry of Justice, where all important information on insolvency proceedings is published. This also allows for insolvency proceedings to remain transparent.

The insolvency act introduces new methods and faster process, with single proceedings where the court decides on three particular solutions:

 

Reorganization

Reorganization is a method of resolving insolvency that aims to preserve the debtor’s business, while granting satisfaction to creditors. Insolvent debtors may initiate proceedings, but debt restructuration proposals must be approved by the court, with periodical inspection of its fulfilment by the creditors. The management retains the right to manage the business.

 

Bankruptcy

Bankruptcy is a court-ordered method of resolving insolvency, whose aim is to monetize all assets of debtor and thus obtained yield to distribute between creditors who have lodged their claims into the proceedings. The authorization to dispose of debtor´s assets and to sell those assets is granted to a bankruptcy trustee who is appointed by court. At this point; the business declared bankrupt is no longer allowed to conduct business operations independently.

 

Debt clearance

Used mainly by individuals (non-entrepreneurs), this is a method of resolving insolvency which presents an alternative to declaring bankruptcy. The Insolvent debtor clears the debt, but under Court control he is obliged to pay only a reduced percentage of total debts.

 

Liquidation

The liquidation procedure begins once it is decided that a company is to be wound up. Either the management or the court appoints a liquidator in charge of liquidating the company’s assets and collecting receivables. Creditors must register their claims within 90 days following publication of the court’s decision, in order to get satisfaction during the liquidation proceedings. All claims of creditors must be fully satisfied in liquidation proceedings. It is important to note that liquidation proceedings are not considered as a method of insolvency in Czech law: in the event that the liquidator finds there are not enough assets to satisfy all claims during liquidation, he is obliged to file a petition for insolvency. At this point, the liquidation turns into insolvency; a separate proceeding.

Vrh