The Czech Republic has excelled in attracting foreign direct investment over recent years, thanks to its skilled workforce, stable business environment and sound government incentives. This has played an important role in improving the capacity and productivity of businesses, which has fed through to booming exports. The country boasts a stable banking sector, liquid capital markets and a well-developed institutional environment, underpinning its status of a regional safe haven in recent years.

We keep our clients abreast of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 22 of the Czech Republic’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert research teams. We aim to keep you ahead of the curve, so you can operate with confidence in the Czech Republic.

Country Risk

Czech Republic Country Risk

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Core Views

  • Strong regional headwinds in the form of the Ukraine crisis and softer external demand are chipping away at the momentum behind the Czech Republic's recovery, as reflected in the Q314 GDP growth deceleration to 2.3% y-o-y from 2.7% in H114. The external economic outlook, which we expect to remain in place in 2015, will prevent growth from accelerating in 2015, underpinning our forecast of 2.6% real GDP expansion in 2015, from an estimated 2.4% in 2014. For 2016, we expect to see a moderate acceleration to 3.0%, in line with improving external demand.

  • The centre-left cabinet of Prime Minister Bohuslav Sobotka will continue on an expansionary fiscal trajectory in 2015-2016. Nevertheless, the government has ample fiscal space to finance higher expenditure, and we do not expect to see deterioration in market perceptions of its sovereign risk profile.

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Czech Republic Operational Risk Coverage (9)

Czech Republic Operational Risk

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The Czech Republic presents some of the lowest operational risks by regional standards, even though its costly bureaucratic procedures, poor contract enforceability, and high utility costs detract from its overall appeal. However, few security risks, a transparent market-oriented economy, and generous financial incentives for foreign investors reduce the overall operational risks of investing in the country.

The Czech Republic is an attractive trading destination due to its geographical position in the heart of Europe, next to the major manufacturing hubs, and within two hours' flying time of most places in the EU. The major operational risks emerge from trade costs. The Czech Republic is a highly trade-dependent economy and has embarked on an export-driven recovery from the financial crisis. However, trading across borders is a time consuming and costly affair, serving as a disincentive to investment. Investors are also subject to higher-...

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Czech Republic Crime & Security

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BMI View: The Czech Republic is a generally safe place for foreign business travellers, expatriates, and tourists, and foreigners are not at higher risk of crime than Czech citizens. The main threats to foreigners are from petty crime, especially pickpocketing, rather than indiscriminate acts of violence. The Czech Republic also has considerably less organised crime than newer members of the EU such as Bulgaria and Romania. This contributes to a regional outperformance in the BMI Crime and Security Index, in fourth place out of 30 Emerging Europe countries, with a score of 79.1 out of 100.

The risk of a terrorist attack occurring in the Czech Republic is low. The biggest threats emerge from organised crime and far-right neo-Nazi groups. Traditionally, the country's homogenous population meant that there were no aggrieved groups with reason to mobilise against the government. However, an...

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Czech Republic Labour Market

Czech Republic Logistics

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The Czech Republic's land-locked status means that supply chains are reliant on road and rail networks, meeting the majority of the country's supply chain needs as the Czech Republic's main trading partners are within the Schengen zone and in most cases just over the border. As a result, we award the Czech Republic a score of 61.8 out of 100 in the Logistics Risk Index, placing it sixth in the Emerging Europe region out of 30 states and 35 th in the world out of 140 states.

Supply chains in the Czech Republic are reliant on the road and rail networks for trade. The country offers good transport links with neighbouring states which benefits supply chains as Germany, Slovakia, and Poland account for its top three trading partners. In addition, access to EU funds has improved the quality of the transport network since the Czech accession in 2003, and projects to boost connectivity will continue in the medium term. In particular, the...

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Czech Republic Trade & Investment

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The Czech Republic faces few trade and investment risks due to its relatively open economy and harmonization of EU regulations. However, investors are exposed to increased risks and costs due to systemic corruption and poor contract enforceability. These risks are partially mitigated by favourable tax rates and attractive financial incentives. Overall, The Czech Republic places sixth in the region, with a score of 70.8 out of 100 in the BMI Trade and Investment Risk Index, between Slovenia and Latvia. The country is also competitive at the global level, in 33rd place out of 170 countries, just below Barbados.

The Czech Republic is a relatively open country for economic activity due to its market-oriented economy and tariff-free trade access across the European Union. Moreover the government offers generous financial incentives for foreign investors in the shape of tax breaks, cash grants and government assistance to...

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Czech Republic Industry Coverage (22)

Autos

Czech Republic Autos

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Passenger car sales in the Czech Republic in 11M14 came in at 175,626 units, an increase of 16.9% year-on-year (y-o-y). Export-led manufacturing growth has been strong throughout the year, which has increased private consumption and the number of car purchases. BMI predicts a slowdown in sales growth in 2015 due to weaker emerging market demand and a weak eurozone recovery slowing export growth. We expect total passenger sales to come in at 189,940 units in 2014, an increase of 12% y-o-y.

According to the Czech Automotive Association, total auto exports climbed 8.2% y-o-y in 10M14. An improvement in the sentiment towards big ticket purchases, such as autos, coupled with low base effects from declines in the same period of 2013, has driven the strong growth seen in the market over the year to date. Yet the export-led recovery is set to continue slowing down in Q4 2014 and into H1 2015 on the back of slowing growth in...

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Commercial Banking

Czech Republic Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Czech Republic Consumer Electronics

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BMI View: We expect consumer electronics sales growth will accelerate in 2015, after the market narrowly returned to growth in 2014. There is however downside, with surveys of retailers indicating koruna depreciation could result in price increases in the PC and AV markets in 2015. Our core scenario is for stronger growth across all three segments in 2015, but in the event of price rises in the PC and AV markets the trend could be similar to 2014 when smartphone sales boomed, offsetting a decline in computer hardware and AV sales as koruna depreciation squeezed demand. Looking further ahead, the largest opportunities are in the mobile PC segment (tablets/hybrid notebooks), Smart-TVs...

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Defence & Security

Czech Republic Defence & Security

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BMI View: The Czech Republic is to continue to benefit from its membership in both NATO and the EU, both in terms of the capability of its armed forces, and the breadth and capacity of its defence industry. Budgetary constraints are to keep troop levels and budgetary allocation stagnant for the foreseeable future. This in turn will result in little growth in the domestic arms market, although international sales of training aircraft continue to perform well. As part of the EU and NATO, and with a small international presence, the Czech Republic has few threats to its security, although the rise of the far-right is an issue we continue to monitor.

The Czech Republic is expected to spend up to USD2.1bn on defence in 2015, according to BMI's forecasting. The past four years has...

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Food & Drink

Czech Republic Food & Drink

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BMI View: The recovery in private consumption remains on track supported by a number of factors. Low inflation benefited real income and private consumption growth in 2014, and this will remain the case in 2015. Low levels of household indebtedness - the household debt to GDP ratio is one of the lowest among regional peers - will also underpin the rebound in private consumption. In addition, the labour market continues to show signs of sustainable recovery, as reflected in the steady drop in unemployment, accompanied by growing number of vacancies, suggesting unemployment has further to fall. Reflecting the rebound in private consumption, retail sales have accelerated in the last months of 2014.

Headline Industry Data (local currency)

  • 2015 per capita food consumption (local currency terms): +1.9%; compound annual growth rate (CAGR) to...

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Freight Transport

Czech Republic Freight Transport

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Czech Republic's freight transport sector will continue growth in 2015 in line with the country's improving economic outlook, following a year in which BMI believes saw increases in volumes across the whole sector.

Total trade is projected to maintain growth in real terms, with our Country Risk desk forecasting a year-on-year (y-o-y) increase of 4.6% in 2015, following an estimated growth of 6.24% in 2014.

Road freight is to continue to dominate the sector and is projected to grow by 3% in 2015. BMI highlights that the EU-wide drive to decrease Europe's reliance on road freight and to diversify to greener freight transport alternatives could lead to a decline in road freight's market share. However, we expect road freight to continue to dominate the Czech Republic and Europe's freight transport sector over the medium term.

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Information Technology

Czech Republic Information Technology

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BMI View: we made a minor downwards revision to our IT market growth outlook in the Q2 2015 update, and we now expect a slight deceleration from 2014 as koruna depreciation and the fact that enterprise confidence is susceptible to shifts in sentiment, and a re-escalation of the eurozone crisis with the election of Syriza in Greece could undermine confidence levels. However, under our core scenario higher levels of business and consumer confidence will see demand growth, while deferred purchases from the previous period of uncertainty, particularly in enterprise software and IT services, will add to momentum. One...

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Infrastructure

Czech Republic Infrastructure

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BMI View: Our forecasts for the Czech construction and Infrastructure sector remain steady, with marginal growth of 3.7% for 2015. After several years of negative growth, investor sentiment still acts as an impediment for financing, but strong fundamentals for the sector point to a brighter picture for the longer term. Support from the EU is forecast to boost new projects from this year onwards.

Key Trends And Developments

The decline in macro-economic performance in the Czech Republic has severely affected private investment and the government's ability to fund infrastructure projects in the construction industry.

The following factors have shaped our overall bearish view for the infrastructure segment in the country:...

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Insurance

Czech Republic Insurance

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BMI View: In spite of its many strengths and a number of essentially positive developments through H214, the Czech insurance sector remains on a trajectory of low growth.

We have long held the view that the Czech insurance sector has been greatly strengthened by the identities of the major players, which are almost all subsidiaries of major multi-national groups. These companies compete through brand, multi-channel distribution strategies, product innovation and price. Traditionally, price competition has limited the growth of premiums, with the result that penetration and density - across both segments - are low relatively to income levels.

As of late 2014, the latest data from the trade association confirms that premiums have been growing slowly in both major segments. In the life segment, volumes have been falling slowly, although increases in...

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Medical Devices

Czech Republic Medical Devices

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BMI Industry View: The Czech medical device market is expected to grow by a CAGR of 8.4% over the 2013-2018 period, alongside increases in GDP, imports and health expenditure. The Czech Republic is heavily reliant on imported medical devices, although domestically manufactured products are of an increasingly good quality and remain competitive in terms of price.

Headline Industry Forecasts

  • In 2013, the Czech medical device market was estimated at US$1,402.3mn, or US$131 per capita. This market size was...

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Metals

Czech Republic Metals

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BMI View:   Having enjoyed strong growth over H114, Czech steel output is now showing signs of slowing as producers find themselves facing a weakening demand scenario. Slowing economic growth in Germany and the wider eurozone region will continue to be the main challenge facing Czech steel mills during 2015 and we have our revised our production forecasts for the country downwards in reflection of this.

BMI's Q115 Czech Republic Metals Report assesses the challenges facing the country's steel sector as it battles against faltering demand in the wake of ongoing uncertainty surrounding the outlook for the eurozone economy. Czech steel production contracted by more than 9% in 2012, only to recover some of its lost growth in 2013. Accelerating output growth appeared to suggest that production was en route to expand by more than 6% over 2014; however...

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Mining

Czech Republic Mining

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BMI View: Coal is the mainstay of the Czech Republic's mining industry and we expect this to remain the case over our forecast period to 2018. The country also hosts a uranium mine and there is long-term potential for gold mining. We expect stagnation in the Czech Republic's coal production over coming years, ending the declines seen over the past decades.

The Czech Republic will remain one of Europe's largest coal producers as the country remains reliant on domestic coal output for power generation. The Czech Republic also exports coal to its European neighbours. Although Czech coal production has declined sharply over past years, we forecast stagnation in the years ahead.

Declining Contribution To GDP
Czech Republic - Mining Industry Value & Mining Industry As % GDP
...

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Oil & Gas

Czech Republic Oil & Gas

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BMI View : While there is a moratorium on shale gas exploration, the Czech Republic will remain highly dependent on imported oil and gas, mostly from Russia, as conventional hydrocarbons production potential is limited. A small increase in refinery utilisation rates will result in a modest increase in refined product import needs to answer rising domestic demand over our forecast period.

Headline Forecasts (Czech Republic 2013-2019)
Indicator 2013e 2014e ...

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Petrochemicals

Czech Republic Petrochemicals

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Strong growth in Czech chemicals, plastics and rubber output has been accompanied by falling feedstock costs, leading to hope that the country's petrochemicals industry will enjoy stronger profitability in 2015, according to BMI's latest Czech Republic Petrochemicals Report.

Czech petrochemicals producer Unipetrol's saw its margins boosted by cheaper oil prices and higher operating capacity in Q414, enabling it to report a profit in the quarter and helping to slash its annual losses by three quarters. Demand for refinery and petrochemical products has picked up because of the performance of the Czech economy, which has been growing for the past four quarters.

Targeting an 11% increase in its petrochemical sales volume to 1.4mn tonnes by 2017, Unipetrol said it anticipated that the global demand for basic petrochemicals to grow by an average 3-3.5%...

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Pharmaceuticals & Healthcare

Czech Republic Pharmaceuticals & Healthcare

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BMI View: With recently implemented cost-saving measures, legislative changes, and health insurance reforms, the Czech Republic is set to recover from its recent period of stagnancy and decline. Indeed, these changes will help to provide for the growing demand for innovative drugs among the country's ageing population. The healthcare spending of the Czech population remains superior to that of the less-developed markets of Eastern and South Eastern Europe, demonstrating that demand in these regions will be even higher. In this regard, the task of meeting these demands is one that will weigh heavily on the road to recovery.

Headline Expenditure Projections

  • Pharmaceuticals: CZK73.34bn (USD3.30bn) in 2014 to CZK75.31bn (USD3.35bn) in 2014; -3.5% in local currency terms and -7.6% in US dollar terms....

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Power

Czech Republic Power

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BMI View: Our view on the Czech power market remains largely unvaried this quarter, while concerns over the country's energy security and carbon emissions profile move to the forefront. The future of nuclear and renewables in the country looks increasingly uncertain as the development of both sources experienced setbacks in recent quarters. With ageing domestic capacity scheduled to come offline over the coming two decades and EU regulations pressurising the country to lessen its dependence on coal, nuclear and renewables had appeared to be the preferred method to fill any future power gap. However, this is now in doubt...

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Real Estate

Czech Republic Real Estate

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BMI View: A robust recovery by the Czech economy has brought some stability to the commercial real estate sector over 2014. Rental rates have stabilised as demand has begun to put downward pressure on vacancy levels. The market, which continues to be seen as one of the most established in the Central and Eastern European (CEE) region, has also benefited from slowing growth across the eurozone and increasing intensions in Russia and Ukraine, which have resulted in a steady uptick in transactional volumes in recent months.

An improving economic backdrop has helped to stabilise the commercial real estate landscape in the Czech Republic during 2014. GDP was estimated to have grown by 2.4% year-on-year (y-o-y) over the year in real terms, representing a...

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Renewables

Czech Republic Renewables

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BMI View : We continue to see limited opportunities in the Czech renewable market at present, as concerns over the country's economic competiveness and previous difficulties with setting renewables subsidies at a sustainable level, has led the government to scale back, and almost abandon, its pursuit of renewable energy. With cheaper fuel sources taking priority, we maintain our reserved outlook for the sector, expecting non-hydro renewable generation to account for roughly 9.4% of total electricity generation by 2023.

The country aims to develop renewables to account for at least 15-16% of total energy consumption by 2030; a target that we consider unachievable at present.

Although Czech Republic has...

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Retail

Czech Republic Retail

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BMI View: Both the economy and the retail sector in the Czech Republic have been struggling for the past three years, marked by a prolonged period of decline. The retail sector will start to rebound in 2015, growing throughout the whole forecast period, and accelerating the most in 2016 when we predict total household spending to expand by 9.7%. The Czech Republic is characterised by arguably the most mature retail sector in the CEE region and high dependency on eurozone countries. BMI expects recovery in Western Europe, rising household income and consumer confidence to propel growth of the country's retail sector in 2015-2018.

Unlike most of the countries in the CEE region, the Czech Republic did not demonstrate stable growth figures over the past three years. Dependence and geographical proximity to the Western European markets - which...

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Telecommunications

Czech Republic Telecommunications

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BMI View: The Czech Republic telecoms market is one of the most advanced in Central and Eastern Europe, with high penetration of both voice and data services. However operators are now facing challenging conditions as price pressures threaten margins, due to market saturation; regulatory factors, such as cuts to mobile termination rates; and the impact of the eurozone crisis on macroeconomic performance acting as drags on performance. Furthermore, the market is in a period of change with the arrival of MVNOs...

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Tourism

Czech Republic Tourism

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BMI View: On the back of a positive outlook for the broader Czech economy, outbound travel continues to grow further over the medium term (2015-2019). Meanwhile, inbound travel is likely to show subdued growth over the same period. The sector's mixed outlook is especially concerning when compared with growth forecasts for regional rival markets such as Hungary.

Following a decline of 0.35% in 2014, arrival numbers are forecast to return to growth in 2015 and beyond. However, growth rates remain subdued and we only expect to see an increase of 800,000 arrivals by 2015 compared with 2015. This represents a substantial reduction from previous forecasts and will have a negative impact on the hotel industry, which we expect to expand slightly in USD terms and contract marginally in local currency terms over the 2015-2019 period...

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Water

Czech Republic Water

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BMI V iew: The Czech Republic has a modern, extensive and relatively efficient water sector. The country's recent history has seen many developments to the sector, largely due to the high standards required for entry into the EU. Despite these improvements there is still work to be done and modernisation is ongoing, especially with regards to the infrastructure and wastewater facilities. As these changes take shape and the sector begins to see the benefits in its efficiency and reduced leakage, we forecast that the amount of water wasted by the sector will decrease while consumption levels increase.

The investment environment around the Czech water sector remains favourable. With developments to the infrastructure ongoing, openness to foreign investment and strong legislation in place opportunities...

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