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

  • The rebound in domestic demand gained momentum in Q115, surpassing even our relatively optimistic expectations as evident in an impressive GDP growth outturn. We have upgraded our forecast for Czech real GDP growth in 2015 to 3.5% and in 2016 to 3.2% from 3.1% for each year previously. Domestic demand is rebounding rapidly, underpinned by record low borrowing costs, subdued inflation, tightening labour market, while external dynamics provide favourable conditions for the ongoing recovery.

  • A recent no confidence vote in the Czech Republic's centre-left government would likely diminish the popularity of Finance Minister Andrej Babis, and his ANO party - the junior coalition partner in the coalition. This, however, is likely to result in a shift in the balance of power towards the ruling CSSD party, instead of rise in support for the opposition parties....

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Czech Republic Operational Risk Coverage (9)

Czech Republic Operational Risk

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BMI View: A high level of trade openness and welcoming foreign investment environment help to boost the Czech Republic's performance in this section of the BMI Operational Risk Index. Although there are concerns relating to corruption in the government and poor administrative practices which increase the bureaucratic burden placed on businesses, overall the Czech Republic has largely succeeded in harmonising regulation with EU standards and offers competitive investment incentives. The country therefore has a score of 68.7 out of 100 for Trade and Investment Risk, ranking the country 4 thout of 31 Emerging Europe states and 30 thout of 201 countries on a global basis.

Due to its extensive domestic manufacturing base, including a well developed autos manufacturing sector, the...

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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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Vehicle sales in the Czech Republic increased 15.9% year-on-year (y-o-y) in 2014, to 215,594 units. This is commensurate with our bullish view on export-led manufacturing growth filtering through to the car market via its positive effects on private consumption and gross fixed capital investment levels.

In 2015, we expect this export-led recovery to continue gathering pace with sales growing by 19% to 256,605 units by end-2016. Export growth will continue to boost industrial production and employment in the country which will boost both consumer spending on cars and business investment into new commercial vehicles (CVs). At the same time growing consumer confidence favourable interest rates and a low credit burden for households will also encourage sales by increasing the availability of affordable auto loans for consumers.

Given these factors we forecast passenger car sales to expand 18.9% in 2015 followed by 3.4%...

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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: Our core scenario is for growth acceleration across all three consumer electronics devices market segments in 2015. However, downside risk remains due to the potential for koruna depreciation, but this is not our core scenario. Nonetheless, 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...

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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 seen...

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Food & Drink

Czech Republic Food & Drink

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BMI View: We have revised up our real GDP forecasts for the Czech economy in 2015 to 3.5%, after standing at an estimated 1.9% in 2014, following two years of recession. The rebound in domestic demand gained momentum in Q115 and surpassed our optimistic expectations, with real GDP expanding by 4.2% y-o-y. In particular, domestic demand contributed 4.7 percentage points (pps) to headline growth, while the external sector subtracted 0.5pps.

Headline Industry Data (local currency)

  • 2015 per capita food consumption: +1.9%; compound annual growth rate (CAGR) to 2019:+3.0%.

  • 2015 alcoholic drinks value sales: +2.8%; CAGR to 2019: +4.2%.

  • 2015 carbonated soft drinks value sales: +4.4%; CAGR to 2019: +5.3%.

  • 2015 mass grocery retail sales: +5.2%;...

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Freight Transport

Czech Republic Freight Transport

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BMI View : Czech Republic's freight transport sector will continue growth in 2015 in line with the country's improving economic outlook. We forecast strong real GDP growth of 3.1% in 2015, which will be powered by an improving consumer outlook. This will encourage domestic freight tonnage- especially road haulage- over the year. Road freight is to continue to dominate the sector and is projected to grow by 2.8% in 2015.

We forecast total trade to grow strongly in the Czech Republic in 2015 and over the next several years. This is due to improving domestic and regional dynamics, particularly in Germany. BMI has recently revised up its forecast for German GDP growth in 2015 and 2016. As the country is Czech Republic's largest trade partner- making up for around a third of total trade- an improving...

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Information Technology

Czech Republic Information Technology

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BMI View: The Czech Republic was one of the strongest performing IT markets in Central and Eastern Europe in 2014 - and we believe it is positioned to outperform again in 2015. Our in-house Country Risk team forecast appreciation of the koruna against the US dollar in 2015, which will help to maintain retail hardware spending growth. Meanwhile, wider economic conditions are conducive to IT market development, with areas including cloud computing, enterprise software, outsourcing and emerging Internet of Things deployments all expected to see strong medium term demand growth. There is however downside risk with enterprise confidence susceptible to shifts in sentiment, and a re-escalation of the eurozone crisis with the election of Syriza in Greece could undermine confidence levels....

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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 3.3% for 2015. After struggling with underfunding for many years, the transport sector is enjoying EU-driven investment into its four trans-European transport corridors, which will sustain growth, particularly in the rail sub-sector, in the medium term. Residential and non-residential construction are further bright spots, with investor sentiment improving, house prices rising and new construction starts on the rise.

Key Trends And Developments

  • Over the coming years we expect the EU's EUR63.4bn transport-focused Cohesion Fund to play a central role in...

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Insurance

Czech Republic Insurance

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BMI View: The Czech life segment is going to return to more positive growth in 2015 following a relatively stagnant 2014. The life market stands to benefit from new tax incentives as well as a gradually improving domestic economic environment. The Czech non-life sector is expected to show good growth in 2015, driven primarily by an expansion in the large motor vehicle insurance line.

Overall we expect to see good growth in the Czech Republic's life and non-life insurance sectors in 2015, slowing towards the end of our forecast period in 2019. This growth is based upon an increasingly positive outlook for economic recovery in the Czech Republic, though we note some headwinds to growth remain such as intense competition in the fragmented market which places downwards pressure on pricing.

The insurance sector in the Czech Republic is relatively well developed and exhibits sophistication...

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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 USD1,402.3mn, or USD131 per capita. This market size was twice that of...

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Metals

Czech Republic Metals

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BMI View: Czech steel producers continue to face a number of headwinds which stand to limit growth in output over the next few years. However, the industry continues to retain a competitive edge through its proximity to Germany as well as the development of new product lines by its leading producers.

The Czech Republic is one of the larger industrial metals producers in Central and Eastern Europe (CEE), producing 5.36mn tonnes (mnt) of crude steel in 2014, or about 3% of total EU output. Traditionally, the country's steel mills have been an important supplier of crude and finished steel products to Germany, while local producers have also thrived off the back of the Czech Republic's sizeable automobile manufacturing industry. However, like that of many EU states, the country's metals sector has faced a series of challenges in recent years, ranging from stagnant economic...

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Mining

Czech Republic Mining

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BMI View: Coal will be the primary component of the Czech Republic's mining industry over the next five years, though weak global prices will lead to stagnant growth and investment in the sector. The country also hosts the Rozna uranium mine, though it is set to close in mid-2017.

The Czech Republic will remain one of Europe's largest producers of both thermal and metallurgical coal to 2019. Slightly over half of the country's electricity generation is derived from coal-fired power plants, providing a base of support for the mining industry. However, the ratio of coal-generated electricity to total generation will fall in the coming years, leading to stagnant growth in coal output. Moreover, weak global steel...

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Oil & Gas

Czech Republic Oil & Gas

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BMI View: 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)
2013 2014e 2015f 2016f ...

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Petrochemicals

Czech Republic Petrochemicals

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The Czech Republic's petrochemicals industry will will remain a key driver of domestic demand for polymers. Although output slowed in Q115, sales were on an upward trend as a result of improved external competitiveness and BMI expects stronger performance in the rest of the year.

Q115's performance was lacklustre compared to an impressive 2014. In the first two months of 2015, chemicals output grew just 1.3% year-on-year (y-o-y), while rubber and plastic grew 3.5% y-o-y. While olefins margins dropped, polyolefins margins continued their improvement. The country's largest petrochemicals producer Unipetrol reported a 1% growth in sales with double-digit growth in polyethylene and polypropylene sales.

Going forward, the automotive and construction industries will remain key petrochemicals market segments. Construction is set to grow 3.7% while the...

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Pharmaceuticals & Healthcare

Czech Republic Pharmaceuticals & Healthcare

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BMI View: Pharmaceutical trade within the Czech Republic is expected to rise in the coming years due to a recent pick-up in Eurozone activity driven by Germany. Exports are to see a rise in demand from trading partners based on our expectation of increasing generic penetration throughout Europe and demand for generics in general across emerging markets. We expect imports to be boosted by expanding fiscal expenditure on pharmaceuticals by the Czech healthcare system as positive economic indicators enable the Czech health insurance body (VZP) to boost pharmaceutical expenditure. Investments in Cancer research and diagnosis are also proving successful, bringing closer companies focusing in the lucrative field of oncology.

Headline Expenditure Projections

  • Pharmaceuticals: CZK76.77bn (USD3.43bn)...

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Power

Czech Republic Power

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BMI View: This quarter our view on the Czech power market remains largely unvaried, 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 sources experienced setbacks and questions about Czech energy security and its emissions profile are becoming more pronounced. With ageing domestic capacity scheduled to come offline over the coming two decades and EU regulations pressuring 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, with the country showing inclinations to maintain an important share of coal-generated electricity in the mix. We further believe that the Czech Republic's export...

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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 renewables 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% of total electricity generation by 2024.

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...

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Retail

Czech Republic Retail

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BMI View: The Czech Republic has arguably the most mature retail sector in Central and Eastern Europe. Competitiveness across the sub-sectors will negatively impact opportunities for the retailers. However, the country will be exiting a long period of recession and the income of Czech households will be growing robustly until 2019, stimulating the sales in the sector.

The Czech economy posted very strong growth figures in Q1 2015. Gross domestic product grew by 3.9% year-on-year (y-o-y) and enjoyed the fastest expansion in the European Union. Reliance on exports makes the Czech Republic susceptible to regional economic shifts, which partly determined the path of country's economic growth since 2008. Currency fluctuations have benefitted the country's manufacturers since the middle of last year - koruna, the national currency,...

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Telecommunications

Czech Republic Telecommunications

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BMI View: The Czech Republic telecoms sector is a mature and advanced market in Central and Eastern Europe and is characterised by high rates of mobile penetration and non-voice data usage. After a period of growth, industry operators are facing stuff challenges as ARPUs decline and downward pressures on price threaten margins due to market saturation, regulatory termination cuts and the lingering impacts of the eurozone macroeconomic crises. Furthermore, the market is evolving following the arrival of MVNOs in 2012. It is our view that MVNOs will increase competition and exert further downward pressure on prices. Nevertheless, untapped potential remains and it exists in the wireless data market...

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Tourism

Czech Republic Tourism

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BMI View: As one of the more developed tourism industries in the region, the Czech Republic is forecast to experience stable levels of growth in the sector over the coming years. Somewhat saturated, there is not quite the level of opportunity found elsewhere in the region, and the country has to continue to try and diversify its source markets away from traditional European neighbours. Government investment in infrastructure and support for tourism will be needed for tourism to reach its potential, although this may be difficult under existing economic conditions.

Over the next five years BMI predicts solid growth in both inbound arrivals (12.4%) and outbound arrivals (27.7%) between 2015 and 2019. However, due to the somewhat saturated nature of the Czech tourism market there are limits on the potential returns from the market compared to elsewhere. The country has not...

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Water

Czech Republic Water

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BMI View: In recent years, the Czech Republic has seen many improvements and developments in its water sector, especially with regard to efficiency and wastewater treatment. As the population begins to grow more rapidly, these improvements will show their worth. As consumption and extraction increase, the efficient and modern infrastructure will ensure minimal losses and excellent wastewater treatment.

The Czech Republic has a modern, extensive and relatively efficient water sector. The country's recent history has seen many developments in the industry, 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...

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