The Czech Republic is a stable and prosperous market economy, closely integrated with the European Union. We have been a member of the EU since 2004; however, we are not a member of the Eurozone yet. The Czech economy, valued at $217 billion in 2012, is small, open, export-driven and remains very sensitive to the economic performance of Germany, our main export market, which accounts for more than 31 percent of our overall exports, followed by Slovakia, Poland, France and the United Kingdom.
When Germany and other countries in Western Europe fell into recession in late 2008, demand for Czech goods plunged and led to double-digit drops in industrial production and exports. As a result, real GDP shrank 4.7 percent in 2009. The economy quickly recovered in 2010 and 2011 and recorded GDP growth of 2.6 percent and 1.7 percent respectively.
Unfortunately, the Czech economy fell into recession again in 2012 and GDP growth shrank to 1.2 percent due to a slump in domestic demand. Household spending fell 3.5 percent, the first decline since 1998 and business spending dropped 1.6 percent in 2012 due to government austerity measures and the euro area’s debt crisis. Foreign trade had a positive effect on the GDP in 2012 as exports, which were up by 4.2 percent, grew faster than imports. Exports were a bright spot in the Czech economy and a testament to continued demand for Czech industrial production despite the slump in the Eurozone. The central bank cut borrowing costs three times in 2012, to effectively zero, and is navigating in uncharted territory. The bank’s forecast shows further policy easing will likely be needed this year.
The car industry remains the largest single industry sector and accounts for almost 24 percent of the manufacturing sector. The Czech Republic produced more than one million passenger cars for the first time in 2010. More than 80 percent is exported. The auto industry accounts for 40 percent of GDP, while services account for 58 percent and agriculture makes up the final 2 percent. Given our dependence on this industry, the major challenges for the Czech economy include dealing with a rapidly aging population, funding a sustainable pension and health care system and diversifying away from manufacturing toward a more high-tech, service-based knowledge economy.
The Czech Republic and Canada have long-standing and close political and economic ties. Canada sheltered many political refugees from Czechoslovakia after 1948 and after 1968. We estimate that the number of people with Czech (or Czechoslovak) roots living in Canada today exceeds 80,000.
Trade between the Czech Republic and Canada is relatively small, but there is a real potential for growth. In 2012, Czech exports to Canada reached $254 million and imports from Canada amounted to $166 million. Our top exports include machinery, iron and steel, rubber, electric and electronic equipment, beer and sporting equipment. From Canada, we buy pet food, pharmaceuticals, aluminum, helicopters and parts, medical devices, sporting equipment and agricultural products such as lentils, beans and chickpeas. In 2012, Czech exports to Canada increased by more than 10 percent and Canadian exports to the Czech Republic decreased by almost 4 percent compared to the previous year. Major Canadian investors in the Czech Republic include companies such as Apotex, Bombardier, Magna International, McCain and Borealis Infrastructure.
The Czech Republic is one of the most successful countries in Central and Eastern Europe in terms of attracting foreign direct investment. It boasts a strategic location in the heart of Europe, a stable banking system, low public debt (40 percent of GDP), low corporate income tax (19 percent), low inflation, well-educated graduates, competitive infrastructure, a safe legal framework and a good supplier base. Investment opportunities in the Czech Republic abound in the automotive and aerospace industries, high-tech mechanical engineering, electrical engineering and electronics, environmental technologies, life sciences, nanotechnology, advanced materials, IT and software development.
We are exploring opportunities for Czech exports to Canada in new advanced sectors such as mining equipment and technology, environmental technologies, biotechnology, renewable energy, ICT and life sciences. Czech companies are looking for Canadian partners in those sectors.
Karel Žebrakovský was the Czech Republic’s ambassador until May 2013. Reach the embassy at (613) 562-3875.
