Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
The United States and the former Czechoslovakia forged a close relationship just over 100 years ago, when America pledged its support for Czech independence. This friendship, which stalled during the period of Soviet influence, has re-emerged as the Czech Republic gained its political independence and joined the European Union. Today, this nation that sits at the heart of Europe has emerged as one of the region’s most prosperous and industrialized economies and serves as an entry point for U.S. companies expanding beyond the more traditional markets in Western Europe to the markets in the east.
Leading up to the Covid pandemic, the Czech economy had a reputation for modest yet steadfast GDP growth. Like most markets, the country experienced record output declines in 2020, from which the country has slowly regained ground, with an eye towards a return to 2-2.5 percent year-on-year growth in 2022. The Czech Ministry of Finance predicts growth to slow to 1.1 percent in 2023. Pre-covid unemployment levels had been under 3 percent, among the lowest in Europe, resulting in a labor shortage and rising wages. The health crisis, however, has taken some pressure off the labor market, although thanks to a generous social safety net, unemployment remains the lowest in the EU. In April 2017, the Czech National Bank removed the currency cap which had kept the crown pegged at 27 CZK to the euro. The Prime Minister declared that the country was fiscally ready to convert to the Euro, however the idea is generally unpopular and unlikely in the near term. The annual targeted inflation rate is around two percent, however, as with many economies, has seen unprecedented rises in consumer prices starting in mid- to late- 2021. Services account for around 60 percent of the economy, with manufacturing at around 38 percent, and agriculture at over two percent. The auto industry is central to industrial production, making up 10 percent of GDP.
The Czech Republic is a medium-sized, open, and export-driven economy that is heavily dependent on foreign demand especially from the Eurozone. Around 88 percent of Czech exports go to other EU member states; of this, 32 percent is exported to the Czech Republic’s largest trading partner, Germany. The United States is the Czech Republic’s largest non-EU export destination. U.S.-Czech trade reached record levels in 2021 with exports from the United States to the Czech Republic growing 23 percent to almost $3.6 billion and imports from the Czech Republic reaching $6.6 billion. Leading U.S. exports to and investments in the Czech Republic include automotive parts and equipment, energy franchising, information technology, medical equipment, and scientific equipment.
Since the Velvet Revolution, foreign investment has played a significant role in boosting Czech productivity, including investment from the United States. For several years, the United States has been the third largest non-European investor in the country. In 2021, cumulative U.S. FDI in the Czech Republic was reported to be $4.8 billion, according to the U.S. Department of Commerce’s Bureau of Economic Analysis. Investments range from consumer goods, IT products and services, aviation, automotive, pharmaceutical, other industrial production and business services. Cumulative Czech FDI in the U.S. was $225 million in 2022, with at least $500 million in announced projects for the coming two years. Notable Czech companies active in the U.S. include Ceska Zbrojovka (firearms), Avast (IT), and Fermat (Industrial Equipment).
Why U.S. Companies Should Consider Exporting to the Czech Republic?
The Czech Republic’s strategic location, well-developed infrastructure, and skilled labor force have allowed this small nation of 10.7 million to elevate itself as an important regional and international manufacturing hub and consumer market for Central and Eastern Europe. Historically the Czech Republic served as the industrial center for the Austro-Hungarian Empire, and today is still one of the most industrialized nations on a per capita basis. With the lowest unemployment rates in the EU, labor shortages have materialized into rising wages, particularly in technology and knowledge-based sectors. Larger salaries, along with a growing expat population, result in more disposable income for the purchase of quality goods and services. American products and brands are viewed favorably for their quality, although competition from both European and Asian sources is high. The government has maintained a focus on developing innovative technologies to further develop the competitiveness of the country. Products that can enhance the supply chain or offer unique advanced attributes will find a receptive market.