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.
The Czech economy has a reputation for modest yet steadfast GDP growth and sound fiscal policy. Like most markets during the COVID-19 pandemic, the country experienced supply chain disruptions and record output declines in 2020, from which the country has slowly regained ground, with a return to 2.5 percent growth in 2022. According to the European Commission, real GDP growth in the Czech Republic is forecast to decelerate to 0.2 percent in 2023, due to elevated price pressures amid tight domestic financial conditions coupled by effects from Russia’s full-scale invasion of Ukraine. The Czech Republic’s unemployment rate is the lowest in the EU and the country faces labor shortages in certain sectors, primarily in technology and healthcare. The country has remained outside the Eurozone and maintains its own currency, the Czech crown. After years of low and stable inflation, disruptions from the COVID-19 pandemic and the War in Ukraine caused inflation to rise sharply in 2022 reaching double digits. The Czech National Bank (CNB) responded by quickly raising interest rates from a low of 0.25 percent in 2021 to seven percent by June 2022 and by summer of 2023 inflation had declined to around 9.7 percent. The CNB is expected to maintain the current interest rate and inflation is expected to gradually decline to around 3.5 percent by 2024. Services account for around 62 percent of the economy, with manufacturing and construction at around 36 percent, and agriculture at around 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 70 percent of Czech exports go to other EU member states; of this, 26 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 and third largest overall non-EU trading partner. U.S.-Czech trade reached record levels in 2022 with exports from the United States to the Czech Republic growing 23 percent to almost $3.8 billion and imports from the Czech Republic reaching $7.5 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.
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 and is currently the fifth largest non-EU holder of FDI stock. In 2022, cumulative U.S. FDI in the Czech Republic was approximately $5 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.
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 10.8 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, particularly in the areas of high-tech engineering, advanced materials, biotechnology, cybersecurity and AI 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. 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.
Visit State Department’s website for background on the country’s political and economic environment.