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- GDP (PPP):
- $314.6 billion
- 2.0% growth
- 1.0% 5-year compound annual growth
- $29,925 per capita
- Inflation (CPI):
- FDI Inflow:
The Czech economy’s transition to greater openness and flexibility has been facilitated by a decade of restructuring and liberalization. Open-market policies sustain global trade and investment flows and enable the economy to capitalize on regulatory efficiencies achieved through earlier reforms. Low tax rates encourage the development of a vibrant private sector.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 73.2 (up 0.7 point)
- Economic Freedom Status: Mostly Free
- Global Ranking: 21st
- Regional Ranking: 11th in Europe
- Notable Successes: Open Markets and Property Rights
- Concerns: Management of Government Spending and Corruption
- Overall Score Change Since 2012: +3.3
The government has placed a high priority on fiscal discipline and is striving for budgetary balance after years of fiscal deficits. Lingering corruption increases the overall cost of doing business, and continued institutional reforms to enhance transparency and keep government spending under control will be indispensable to ensuring entrepreneurial dynamism.
The end of Czechoslovakia’s Communist dictatorship in 1989 led to the election of dissident playwright Vaclav Havel as president. The Czech Republic separated from Slovakia in 1993 and joined NATO in 1999 and the European Union in 2004. Prospects for adoption of the euro are uncertain, but the government appears to be moving toward closer alignment with the eurozone. The first directly elected president, Miloš Zeman of the center-left Czech Social Democrat Party, appointed a caretaker government in August 2013, and legislative elections followed in October. In January 2014, Zeman asked Social Democrat leader Bohuslav Sobotka to form a government. The Czech Republic is an export-based economy, and growth far outpaced expectations in the early part of 2015.
Chronic corruption has tainted public procurement and the management of EU funds. Several high-ranking politicians and civil servants have been implicated in an ongoing investigation of graft and abuse of office. The judiciary’s independence is largely respected, but its complexity and multilayered composition cause the delivery of judgments to be slow. Property rights are relatively well protected, and contracts are generally secure.
The individual income tax rate is a flat 15 percent, and the standard corporate tax rate is 19 percent. Other taxes include a value-added tax and an inheritance tax. The overall tax burden equals 34.1 percent of total domestic income. Government spending has stabilized at about 41.9 percent of total domestic output. The budget has been in deficit, driving public debt to over 40 percent of GDP.
Recent reforms have reduced the cost and number of procedures required to launch a company, but the pace of reform has slowed in comparison to other comparable economies. The labor market is relatively flexible. Unemployment has declined to the lowest level since 2009. Subsidies from the EU to fund a variety of programs, from economic convergence to agriculture, increased substantially in 2015.
EU members have a 1 percent average tariff rate. Trade agreements are currently being negotiated with countries that include the United States and Japan. Although most state-owned enterprises have been privatized, some remain unreformed. The financial sector, diversified and competitive, has shown its resilience in maintaining capital levels and liquidity.