CZECH ECONOMY 2015 CZECH ECONOMY. Ing. Martin Hronza Director of the Department of Economic Analyses

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1 2015

2 Overview of the Czech Economy GDP Labour Market Inflation Balance of Payments FDI Industry Foreign Trade

3 Main Characteristics of the Czech Economy Small, open economy, considerably dependent on foreign trade. Strong business and ownership relations to the EU. Big portion of manufacturing sector (27 % of GDP in 2014). Long term real convergence to the developed countries, in 2014 GDP per capita 84% of the EU average, after recent recessions drop to 81% in Low inflation, price fluctuations caused by impacts of administrative measures. A relatively low unemployment rate, among the lowest in the EU. The current account achieved nearly a macroeconomic balance in 2014, due to growing trade surplus. Fiscal consolidation: deterioration in the government deficit to 2% of GDP and reduction of the government debt to 42,6 % of GDP (notification for 2014).

4 Gross Domestic Product The Czech economy growth peaked in the second quarter of 2006 at y/y rate of 7.3%. In 2009, due to the global crisis, the domestic economy fell in the deepest recession in its recent history, GDP declined by 4.7%. Signs of recovery emerged in 2010, mainly due to the favourable development of foreign demand, but the growth slowed again in Subsequent recession compared to that of 2009 milder, but longer (GDP decline by 0,8% in 2012 and by 0,5% in 2013). Restoring growth of 2.0% in 2014 and a significant acceleration to 4,2% in the first half of Actual growth supported by one-off factors (low oil prices, fiscal stimulus, fluctuations in the collection of taxes).

5 Gross Domestic Product Source: CZSO, graph MIT, Department of Economic Analysis

6 Gross Domestic Product Source: Eurostat, graph MIT, Department of Economic Analysis

7 Gross Domestic Product Source: CZSO, graph MIT, Department of Economic Analysis

8 Labour Market Source: Eurostat, graph MIT, Department of Economic Analysis

9 Inflation Source: CZSO, graph MIT, Department of Economic Analysis

10 Balance of Payments Initially current account deficit (caused by a balance of trade deficit) compensated by inflow of foreign capital. Pro-export effect of investment helped the balance of trade to become positive (since 2005). But the current account as a whole remained in red numbers due to negative income balance (includes the outflow of dividends and reinvested earnings). On the other hand inflow of foreign capital is one of the major causes of the raise of external debt. High share of FDI is being financed from reinvested earnings from previous investments.

11 Balance of Payments Source: CNB, graph MIT, Department of Economic Analysis

12 External Debt Source: CNB, graph MIT, Department of Economic Analysis

13 Foreign Direct Investment Source: CNB, graph MIT, Department of Economic Analysis

14 Foreign Direct Investment Source: CNB, graph MIT, Department of Economic Analysis

15 Foreign Direct Investment Source: CNB, graph MIT, Department of Economic Analysis

16 Foreign Direct Investment Source: CNB, graph MIT, Department of Economic Analysis

17 Government Deficit/Surplus and Debt Source: CZSO, graph MIT, Department of Economic Analysis

18 Industry Industrial production fell by 13.6% in 2009, then, after two years of growth, decreased again in 2012 by 0,8% and in 2013 by 0.1%. Growth was restored in 2015 (5%) and roughly at the same pace continued in the first half of 2015 (4,7%). The decisive share of the automotive industry (28.2% of overall industrial production in June 2015). Its growth has a positive effect on other supply sectors. New orders increased by 12,6% y/y in 2014, of which non-domestic by 12.9% and domestic by 12,1%. In June 2015, total orders increased by 10.3% y/y, non-domestic by 9.7% and domestic by 11,4%. Further development of the sector will largely depend on demand for vehicles, but also on the development of other industries in the partner countries. The growth rate of the Czech industry in 2015 is expected to reach the same level as last year.

19 Industry Source: CZSO, graph MIT, Department of Economic Analysis

20 Industry Source: CZSO, graph MIT, Department of Economic Analysis

21 Industry Source: CZSO, graph MIT, Department of Economic Analysis

22 Industry Source: CZSO, graph MIT, Department of Economic Analysis

23 Industry Source: CZSO, graph MIT, Department of Economic Analysis

24 Industry Source: CZSO, graph MIT, Department of Economic Analysis

25 Foreign Trade Trade balance reached surplus of 441,0 billion CZK in 2014, which was by CZK 89,8 billion higher compared to previous year. Exports grew by 14% and imports by 12,5% in 2014 (y/y). Strong reliance on manufacturing industry (55% share of machinery and transport equipment in 2014) and on exports to EU-28 (82,2% of total exports in 2014). Exports grew by 7,7% and imports by 8,3% in the first half of Trade balance recorded a surplus of CZK 244,2 billion, up by CZK 7,9 billion compared with the first half of 2014.

26 Foreign Trade Source: CZSO, graph MIT, Department of Economic Analysis

27 Export by Commodity (%) Source: CZSO, graph MIT, Department of Economic Analysis

28 Import by Commodity (%) Source: CZSO, graph MIT, Department of Economic Analysis

29 Export by Countries (%) Source: CZSO, graph MIT, Department of Economic Analysis

30 Import by Countries (%) Source: CZSO, graph MIT, Department of Economic Analysis

31 Czech Economy Forecast forecast Gross Domestic Product (change in %) MIT 2,0 3,7 2,5 MF 2,0 3,9 2,5 CNB 2,0 3,8 2,8 Colloquia Average* 2,0 2,4 2,6 European Commission** 2,0 2,5 2,6 Average Inflation Rate (in %) MIT 0,4 0,6 1,5 MF 0,4 0,5 1,5 CNB 0,4 0,7 x / 1,7 x / Colloquia Average* 0,4 0,3 1,5 European Commission** 0,4 0,2 1,4 Unemployment Rate (in %) MIT 6,1 5,6 5,5 MF 6,1 5,7 5,5 CNB 6,1 5,7 5,5 Colloquia Average* 6,1 5,7 5,5 European Commission** 6,1 5,6 5,5 Note: ** Based on the Colloquia results of 20 institutions (April 2015), organised by the Ministry of Finance **European Commission - Spring Forecast 2015 x / y/y increase

32 The Czech Economy Martin Hronza Ministry of Industry and Trade Na Františku 32, Praha 1