Economic studies
Czech Republic

Czech Republic

Population 10.5 million
GDP per capita 17569 US$
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Synthesis

major macro economic indicators

  2014 2015  2016(f) 2017(f)
GDP growth (%) 2.7 4.5 2.5 2.7
Inflation (yearly average) (%) 0.4 0.3 0.5 1.0
Budget balance (% GDP) -1.9 -0.4 -0.6 -0.8
Current account balance (% GDP) 0.2 0.9 1.5 1.0
Public debt (% GDP) 42.2 40.3 40.0 39.0

 

(f) Forecast

STRENGTHS

  • Central geographic position at the heart of industrial Europe
  • Strongly integrated into the international, particularly German, production chain
  • Preferential destination for foreign direct investments in Central Europe
  • Considerable industrial potential
  • Sound public accounts and banking system
  • Low external energy dependence

WEAKNESSES

  • Small, very open economy: exports account for 84% of GDP
  • Highly dependent on European demand: 63% of exports are to the Euro zone, one third to Germany
  • Automotive occupies large share of the economy
  • Lack of rapid transport links with the rest of Europe
  • Ageing population and lack of skilled workforce

RISK ASSESSMENT

Growth sustained by internal and external demand

After exceptional performance in 2015 following a surge in public investment due to the need to use the remaining funds available under the European funding programme, which was reaching maturity, growth returned to a pace in line with potential in 2016. In 2017, household demand will remain buoyant, carried by the dynamism of the job market and wages, the availability of abundant and cheap credit, as well as the introduction of family benefits aimed at boosting the birth rate. With 2017 being an election year, fiscal largesse cannot be ruled out. External demand will benefit from robust consumption and German exports, as well as from the healthy state of the European automotive market on which the country greatly depends. Because of the large share of exports in the Czech economy, this will impact positively on jobs and household demand. However, if the lower limit on the koruna against the euro, in force since November 2013 is abandoned, the resulting appreciation could lead to slower exports and faster import growth, which would reduce trade's contribution to growth. Automotive, which accounts for 28% of industrial production, 20% of exports of goods and 10% of GDP, are expected to continue to prosper. As for construction, it is expected to benefit from the return to normal regarding European funding, which will generate an average annual surplus of 2% of GDP until 2022.

 

Excellent budget position  

In two years (2013-2014) of austerity, the Czech government has restored its public finances. The fiscal deficit fell below 1%. Despite a slight easing expected in 2017 (increase in civil service salaries and pensions, recruitment of more teachers …), no doubt linked to the holding of elections in 2017, the position will remain satisfactory. The debt burden, already moderate, will continue to fall. Despite the influx of foreign capital, attracted by the prospect of an appreciation of the koruna, 75% will still be held by local investors. This success explains why 80% is denominated in koruna and issued at negative rates on short maturities.

 

Current account balance in equilibrium dependent on German economy and automotive

The trade balance runs a structural surplus (4.7% of GDP in 2015) thanks to the strong integration of Czech industry into the European production chain, especially that of Germany, and automotive. Engineering, household appliances and electrical equipment also make a positive contribution. Services generate a small surplus (1.7%) thanks to tourism. The income deficit (5.5%) is explained by the considerable stock of FDIs. Together these factors make for a slight current account surplus, which could be affected by a fall in the trade surplus. The potential for it to deteriorate is, however limited, as a drop in exports would be accompanied by a drop in imports and dividend repatriations. Moreover, European funds and foreign capital would easily help cover any deterioration. Despite its significant level (70.7% of GDP), the external debt presents a low risk. It is now stable and is in large part composed of intragroup commitments, loans linked to FDIs, short-term commercial loans and deposits made by foreign banks with their local subsidiaries (87% of bank assets), which by their nature are fairly fixed. Allowing for these commitments, the external debt level is only 37.5%.

 

A coalition government until the October 2017 elections

The electoral law, which includes a high element of proportional representation, means there is no clear majority, forcing the formation of multi-party coalition governments. But, despite frequent disagreement within government, Parliament generally sits for the full term, if need be, thanks to the formation of a technocratic government. This is because 3/5 of the votes are needed to ask the President to dissolve the Chamber. Furthermore, the Communist Party, traditionally the third political force in the country, is systematically excluded from the national coalitions. Accordingly, following the corruption scandals which tainted the previous centre-right majority, the early parliamentary elections of October 2013 brought to power a coalition dominated by the Social Democratic Party (CSSD) and the centrist anti-corruption party, the ANO 2011, with the office of prime minister and deputy prime minister in charge of finance being held by their respective leaders: Bohuslav Sobotka and Andrej Babis, a media magnate with significant assets in the chemical and food industries too. Despite the tensions over differences on fiscal policy, the timetable for adopting the euro, the acceptance of refugees, Andrej Babis's conflicts of interest and the ANO's victory in the October 2016 regional elections, the coalition is expected to last until the elections in October 2017. 

 

Last update : January 2017

Payment

Cash payments are limited by law by a ceiling of approximately EUR 10000,-.

 

Bank transfers are by far the most widely used means of payment. SWIFT system is fully operable since years, providing an easier, quicker and cheaper method for handling international payments.

 

Cheques for domestic transactions are not widely used. Bills of exchange or promissory notes are commonly used as a security instrument, whose advantage is a possibility to access a fast-track procedure for ordering payment by court (under certain legal conditions).

 

Electronic invoices are widely accepted.

 

Debt collection

 

Best way to ensure recovery is to have and store duly signed written contract and maximum documents related to the business like invoices, confirmed delivery notes (internal delivery notes, CMR´s, CIM´s, bill of lading, air waybill, packing lists etc.), individual orders and any other relevant documentation and correspondence.

 

Amicable phase in debt collection process

Amicable debt collection is recommended, because it remains cheaper for creditor compared to legal proceedings.

Main factors influencing efectiveness in debt collection are age of debt (earlier start of collection => bigger chance for succesful result) and reason of non-payment, while some typical reasons of non-payment with different probability of success are considered: administrative mistake (very high probability of successful collection), secondary payment inability (high probability of successful collection under condition that debtor´s own outstandings will be paid by his customers (debtors), dispute (depends on mutual negotiations and solution), debtor´s intention not to pay (very low probability of successful collection, legal action recommended), insolvency as objective status (negligible probability of successful collection)

 

Interim remedies available in commercial matters

Creditor can lodge a request to the Court to issue a preliminary or interim measure for provisional regulation of relations between parties to contract.

The court has to decide on the matter within 7 days from lodging of the request.

 

Legal proceedings

The costliness and length of an average legal proceedings is comparable to European standards. 

Total costs of legal proceedings consists of court fee, costs of legal representation and costs of translations or expert opinions (when needed).

Average costs including court fee of 4% (with a minimum of 400,- CZK when the plaintiff applies for the electronic payment order; otherwise it is 5% and at least 1000,- CZK), lawyers’ fees approximately 15% and other costs approximately 3%  (expert’s opinion, language translations) are as a total sum 20 -25 % of the nominal value.

  1. Fast track procedure / Order to pay (in Czech “platební rozkaz”)

This is a practical and rather short procedure, provided by sections 172 - 175 of the Code of civil procedure (in Czech občanský soudní řád, hereinafter “CCP”).

The judge convinced of the merits of the claim and without hearing the case, issues a payment order which is served on the defendant, who may either accept it or file a statement of opposition against it within 15 days of its service.

If the debtor opposes the debt, then the process continues as a standard court proceedings (the ordinary or plenary one).

If the legal action duly described and substantiated the creditor’s claim, the court can issue an order to pay, even if the creditor has not requested such an order.

An average time of a decision – minimum 2 months to maximum 6 months, the average time is 3 months.

 

  1. Ordinary procedure / Plenary procedure

The ordinary proceedings takes place after the defendant has disputed the claim in the previous procedure or by applying directly for court.

From the 1st July 2009 onwards (Act No. 7/2009 Coll.) is effective the amendment of the CCP which introduced the electronic in justice, lessened the burden of judges and ensured the prevention of delays in proceedings. All correspondences from Czech authorities to legal persons shall be delivered via electronic means, using data boxes registered with special legal regulation (Act No. 300/2008 Coll., effective as of 1st July 2009).

 

  1. The Enforcement of a Decision / Judgement

Creditor cannot choose whether to obtain satisfaction of his claim by means of judicial enforcement or by enforcement actions of judicial executor (in Czech soudní executor). Judicial enforcement is reserved only for matters specifically listed in the law – e.g. decisions in matter of upbringing of minor children, or decisions of foreign bodies including the EU institutions.  In case of monetary claim stemming from the business relationship has the creditor the only possibility, which is to proceed by means of execution performed by the judicial executor under Act No. 120/2001 Coll. (in Czech exekuční řád, the Execution Act) effective as of 1st May 2001.

Enforcement by judicial executor is considered to be more effective, because he is a private person and his fees depend on his success in enforcement.

A specific fees schedule applies based on the amount concerned by the execution.

 

 

Insolvency proceedings

The insolvency act introduces new methods and faster process, with single proceedings where the court decides on 3 particular solutions: the reorganisation, the debt clearance or in other words discharge of debts, and the bankruptcy. The insolvency petition could be lodged by any creditor, who is able to prove the existence of other creditors or by the debtor himself. Creditors are liable for damages caused by filing a bankruptcy petition where the conditions of insolvency were not met.

The law institutes the insolvency register (in Czech insolvenční rejstřík) – kept by the Ministry of Justice – where all important information on insolvency proceedings is published (sections 419-425 of the Insolvency Act). It also raises transparency on the proceedings.

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