From industrialisation to communism (1800-1989) The Czech lands were among the first industrialized countries in continental Europe during the
German Confederation era. The Czech industrial tradition dates back to the 19th century, when the
Lands of the Bohemian Crown were the economic and industrial heartland of the
Austrian Empire and later the Austrian side of
Austria-Hungary. The Czech lands produced a majority (about 70%) of all industrial goods in the Empire, some of which were almost monopolistic. After the First World War, the Austrian-Hungarian Empire collapsed and independent
Czechoslovakia was created. Czechoslovakia had way too big industrial production for a small internal market and it missed the big market of the former Empire. The
Czechoslovak crown was introduced in April 1919 at a 1:1 ratio to the Austro-Hungarian currency, it became one of the most stable currencies in Europe. It is a widespread myth among Czechs that the
First Republic belonged to the 10 most developed economies of the world. In fact it had the 14th highest GDP per capita in the world. The Czech part (without
Slovakia and
Transcarpathia) had a similar
GDP per capita in the 1920s to Germany and Belgium, which was higher than that of the crisis-struck
Austrian First Republic. The consequences of the 1938
Munich Agreement and subsequent
Nazi Germany occupation were disastrous for the economy. After the occupation and forced subordination of the economy to Nazi German economic interests, the crown was officially pegged to the mark at a ratio of 1:10, even though the unofficial exchange rate was 1 to 6-7 and Germans immediately started buying Czech goods in large quantities. After the
World War II and the
Communist Coup d'état were all the economies of the
socialist countries tightly linked to that of the
Soviet Union, in accordance with
Stalin's development policy of planned interdependence.
Czechoslovakia was the most prosperous country in the
Eastern Bloc, however it was
during the decades overtaken not only by Austria or Finland but also Southern European economies like that of Italy, Spain or Greece. headquarters in Prague such as
steelmaking is a traditional part of the Czech economy.
1989–1995 The "
Velvet Revolution" in 1989, offered a chance for profound and sustained political and economic reform. With the disintegration of the communist economic alliance in 1991, Czech manufacturers lost their traditional markets among former communist countries in the east. Signs of economic resurgence began to appear in the wake of the
shock therapy that the
International Monetary Fund (IMF) labelled the "
big bang" of January 1991. Since then, consistent liberalization and astute economic management has led to the removal of 95% of all price controls, low unemployment, a positive
balance of payments position, a stable
exchange rate, a shift of exports from former
communist economic bloc markets to Western Europe, and relatively low
foreign debt. Inflation has been higher than in some other countries – mostly in the 10% range – and the government has run consistent modest
budget deficits. Two government priorities have been strict
fiscal policies and creating a good climate for incoming investment in the republic. Following a series of currency
devaluations, the
crown has remained stable in relation to the
US dollar. The Czech crown became fully
convertible for most business purposes in late 1995. In order to stimulate the economy and attract foreign partners, the government has revamped the legal and administrative structure governing investment. With the breakup of the Soviet Union, the country, till that point highly dependent on exports to the USSR, had to make a radical shift in economic outlook: away from the East, and towards the West. This necessitated the restructuring of existing banking and telecommunications facilities, as well as adjusting commercial laws and practices to fit Western standards. Further minimizing reliance on a single major partner, successive Czech governments have welcomed U.S. investment (amongst others) as a counterbalance to the strong economic influence of Western European partners, especially of their powerful neighbour, Germany. Although
foreign direct investment (FDI) runs in uneven cycles, with a 12.9% share of total FDI between 1990 and March 1998, the U.S. was the third-largest foreign investor in the Czech economy, behind Germany and the Netherlands. Czech high export profile has made it tightly woven into both European and global markets and supply chains, which has contributed to its relatively low unemployment.
1995–2000 is the largest automobile manufacturer in the Czech Republic. The country's economic transformation was far from complete. Political and financial crises in 1997 shattered the Czech Republic's image as one of the most stable and prosperous of post-Communist states. Delays in enterprise restructuring and failure to develop a well-functioning capital market played major roles in Czech economic troubles, which culminated in a currency crisis in May. The formerly pegged currency was forced into a floating system as investors sold their Korunas faster than the government could buy them. This followed a worldwide trend to divest from developing countries that year. Investors also worried the republic's economic transformation was far from complete. Another complicating factor was the current account deficit, which reached nearly 8% of GDP. In response to the crisis, two
austerity packages were introduced later in the spring (called vernacularly "The Packages"), which cut government spending by 2.5% of GDP. Growth dropped to 0.3% in 1997, −2.3% in 1998, and −0.5% in 1999. The government established a restructuring agency in 1999 and launched a revitalization program – to spur the sale of firms to foreign companies. Key priorities included accelerating legislative convergence with EU norms, restructuring enterprises, and privatising banks and utilities. The economy, fueled by increased export growth and investment, was expected to recover by 2000.
2000–2005 Growth in 2000–05 was supported by exports to the EU, primarily to Germany, and a strong recovery of foreign and domestic investment. Domestic demand is playing an ever more important role in underpinning growth as interest rates drop and the availability of credit cards and mortgages increases. Current account deficits of around 5% of GDP are beginning to decline as demand for Czech products in the European Union increases. Inflation is under control. Recent accession to the EU gives further impetus and direction to structural reform. In early 2004 the government passed increases in the Value Added Tax (VAT) and tightened eligibility for social benefits with the intention to bring the public finance gap down to 4% of GDP by 2006, but more difficult pension and healthcare reforms will have to wait until after the next elections. Privatization of the state-owned telecommunications firm
Český Telecom took place in 2005. Intensified restructuring among large enterprises, improvements in the financial sector, and effective use of available EU funds should strengthen output growth.
2005–2010 Growth continued in the first years of the EU membership. The credit portion of the
2008 financial crisis did not affect the Czech Republic much, mostly due to its stable banking sector which has learned its lessons during a smaller crisis in the late 1990s and became much more cautious. As a fraction of the GDP, the Czech public debt is among the smallest ones in Central and Eastern Europe. Moreover, unlike many other post-communist countries, an overwhelming majority of the
household debt – over 99% – is denominated in the local Czech currency. That's why the country wasn't affected by the shrunken money supply in the U.S. dollars. However, as a large exporter, the economy was sensitive to the decrease of the demand in Germany and other trading partners. In the middle of 2009, the annual drop of the GDP for 2009 was estimated around 3% or 4.3%, a relatively modest decrease. The impact of the economic crisis may have been limited by the existence of the national currency that temporarily weakened in H1 of 2009, simplifying the life of the exporters. The Czech Republic has a well-educated population and a densely developed infrastructure.
2010–2019 is the major Czech airline holding company with subsidies including the
Czech Airlines. Due to the
Great Recession, Czech Republic was in stagnation or decreasing of GDP. Some commenters and economists criticising fiscally conservative policy of Petr Nečas' right-wing government, especially criticising ex-minister of finance,
Miroslav Kalousek. Miroslav Kalousek in a 2008 interview, as minister of finance in the center-right government of Mirek Topolánek, said "Czech Republic will not suffer by financial crisis". In September 2008, Miroslav Kalousek formed state budget with projection of 5% GDP increase in 2009. In 2009 and 2010, Czech Republic suffered strong economical crisis and GDP decreased by 4,5%. From 2009 to 2012, Czech Republic suffered highest state budget deficits in history of independent Czech Republic. From 2008 to 2012, the public debt of Czech Republic increased by 18,9%. Most decrease of industrial output was in construction industry (-25% in 2009, -15,5% in 2013). From 4Q 2009 to 1Q 2013, GDP decreased by 7,8%. In 2012, Czech government increased
VAT. Basic VAT was increased from 20% in 2012 to 21% in 2013 and reduced VAT increased from 14% to 15% in 2013. Small enterprises sales decreased by 21% from 2012 to 2013 as result of increasing VAT. Patria.cz predicting sales stagnation and mild increase in 2013. Another problem is foreign trade. The Czech Republic is considered an export economy (the Czech Republic has strong machinery and automobile industries), however in 2013, foreign trade rapidly decreased which led to many other problems and increase of state budget deficit. In 2013, Czech National Bank, central bank, implemented controversial monetary step. To increase export and employment, CNB wilfully deflated Czech Crown (CZK), which inflation increased from 0.2% in November 2013, to 1.3% in 1Q 2014. In 2014, GDP in the Czech Republic increased by 2% and is predicted to increase by 2.7% in 2015. In 2015, Czech Republic's economy grew by 4,2% and it's the fastest growing economy in the
European Union. On 29 May 2015, it was announced that growth of the Czech economy has increased from calculated 3,9% to 4,2%. company
Avast had its IPO on the
Prague Stock Exchange and the London Stock Exchange in 2018. The
information and communications technology (ICT) and
software development is a major sector of the Czech economy. In August 2015, Czech
GDP growth was 4.4%, making the Czech economy the highest growing in Europe. On 9 November 2015, unemployment in the Czech Republic was at 5.9%, the lowest number since February 2009. On the other hand, the economy suffers from dividends being paid to the
foreign owners of Czech companies (in 2016 worth CZK 289 billion). It is seen as a hurdle to catching up with the Western European economies and as a reason for salaries being only a third of neighbouring Germany or Austria. In 2019 it was described by
The Guardian as "one of Europe's most flourishing economies"
2020-present The worldwide
COVID-19 pandemic in the early 2020s as well as the European energy crisis caused by the
Russian full-scale invasion of Ukraine in 2022 hit the Czech economy hard. In 2023, the conservative German newspaper
Die Welt called the Czech Republic "Europe's sick man" as it was the only country not to economically recover from the pandemic trap. Furthermore, the newspaper highlighting the danger of the Czech Republic being stuck in the
middle-income trap, although it is labelled as
high-income country by the World Bank since 2006. ==Adoption of Euro and EU funds==