Czechia – an open and dynamic export market
Czechia continues to be a steady, export-oriented supply base in Europe. Its major exports are in the machinery and transportation sectors.
Czechia’s exports maintained a steady upward CAGR of 10% from 2001 to 2021. Although there was a drop due to the pandemic in 2020 to USD 192bn, Czechia’s exports managed to bounce back to USD 227bn in 2021 with a year-on-year increase of 18.1%.
Czechia is an open and dynamic export market, and it has positioned itself as an important supply base in the Eurozone. Germany was the top export destination for Czechia and was the recipient of 32% of the country’s total exports in 2021. Czechia mostly exported machinery & electronics and transportation goods; together, these two sectors made up 57% of its total exports in 2021.
Trends: As in the case of most countries, Czechia experienced record output declines in 2020, with its exports hitting rock bottom in May 2020. However, as global supply chains gradually adapted to the situation, Czechia resumed its export-oriented manufacturing industry by the autumn of 2020.
- Czechia’s export growth initially slowed down in 2018 due to a labour shortage. As a result of the pandemic, exports declined by 3.6% in 2020. As the Covid-related restrictions diminished, the manufacturing industry experienced a bit of a boost, and these two things helped Czechia to swiftly recover in 2021, as illustrated by the country reaching new export heights of USD 227bn that year
- In 2021, a total of 80.4% of Czechia’s exports were delivered to fellow EU countries with Germany (USD 73.1bn, 32.4%), Slovakia (USD 18.1bn, 8.0%), and Poland (USD 15bn, 6.6%) being the top 3 export destinations.
- Czechia’s total exports grew at a CAGR of 10% in the last two decades (2001-2021), while machinery & electronics experienced the highest CAGR of 11.2% during the same period.
- Capital goods (46%) and consumer goods (38%) together comprised 84% of the total exports in 2019.
- In 2021, machinery & electronics (USD 85bn), transportation (USD 43bn), and metals & minerals (USD 26bn) were the top 3 export sectors, respectively making up 38%, 19% and 11% of the total exports.
- The top 20 exports of Czechia were valued at USD 105bn, and these made up a 46% share of total exports in 2021.
- The top 5 exported goods in 2021 were cars (USD 23bn), computers (USD 15bn), vehicle parts (USD 15bn), telephones (USD 11bn), and insulated wiring (USD 4bn).
- Since the end of one-party rule of what was then Czechoslovakia, foreign investment has played a significant role in boosting Czechia’s productivity. The share of investors from European countries for foreign investment in Czechia is around 94%. Only 6% of the foreign capital comes from countries outside of Europe, with South Korea, Japan, and the USA being the most significant investors.
- Czechia has enjoyed a trade surplus for more than a decade, but it decreased to USD 18.1bn in 2021 from USD 20.9bn in 2020. Czechia enjoys positive net exports in the international trade of automobiles, most notably vehicles, automotive parts, and accessories. In turn, the high cash flow from these exports indicates Czechia’s strong competitive advantages in the transportation sector.
Upshot: Czechia has long been a competitive supplier in the sectors of machinery & electronics, as well as transportation. Czechia’s annual Gross Domestic Product (GDP) shrank by 5.8% year-on-year in 2020, making it the country’s worst economic year in modern history, but its economy grew by 3.3% in 2021.
With the reopening of Europe and the global market in general, its exports have increased significantly. However, the war in Ukraine is likely to disrupt growth this year. Spiking fuel and energy costs are expected to contribute to rising consumer prices, and a very difficult situation is forecast for Czech businesses because of this.
- As a member of the EU, Czechia has 46 preferential trade agreements in force. Czechia is a signatory to the General Agreement on Tariffs and Trade (GATT) and is a member of the World Trade Organization (WTO). Czechia also has a bilateral investment treaty with the United States.
- Czechia’s government policies have also been focused on smart and digital initiatives to improve trade, while it prioritises the development of nuclear energy and renewables.
- Ukraine is a major exporter of agricultural products such as cereals and oils. The devastation of agricultural production in the country will likely lead to significantly higher costs for basic ingredients, such as flour. This situation might present opportunities for the Czech agricultural industry in supplying home grown products to help meet a shortfall in supply.
- Czechia’s economy is predicted to expand, with expansion expected in both the domestic manufacturing industries and the export markets.
- Based on the average exchange rate for 2021, the Czech Koruna appreciated by 7.3% against the US dollar since 2017 and increased by 6.6% from 2020 to 2021. Czechia’s stronger local currency made its exports, which are paid for in weaker US dollars, relatively more expensive for international buyers in 2021.
- The annual inflation rate in Czechia accelerated for the thirteenth straight month to 17.5% in July 2022, the highest since December 1993. The main drivers of this came from the rising costs of housing and utilities (20%), most notably electricity (30.1%), natural gas (44.2%) and solid fuels (24.1%)); food and non-alcoholic beverages (10.7%); clothing and footwear (19.3%); recreation and culture (10.5%); and miscellaneous goods and services (9.3%). In 2023, the average inflation rate is expected to slow to 4.4%
- In the labour market, imbalances related to labour shortages, which are evident in virtually all sectors of the economy, were further exacerbated. The unemployment rate averaged 2.3% in 2021 and has increased to 3.3% in July 2022. Due to the lagging effects of weak growth this year, the unemployment rate could rise slightly in 2023.
Imperatives: Czechia is a strong potential supply market, but it still has some economic problems to overcome. These include the average inflation rate and rising electricity prices (nearly 100% year-on-year). These have led to higher market interest rates and labour market shortages.
- Czechia is a manufacturing hub for auto parts, vehicles, and machinery & electronics. It is also a supplier of raw materials.
- There is a shortage expected of certain materials needed in the manufacturing and heavy industry sectors of Czechia. This is due to Russia being one of the world’s leading exporters of metals such as steel, nickel, and aluminium, so disruptions in trade could become a major headache for heavy manufacturers and engineering companies.
- Czechia is close to its European export markets, and therefore has the potential to increase its manufacturing capabilities and to expand its exports, not only to Europe, but also to Asia.
- Take advantage of this country’s strong manufacturing capabilities and free market policies that place a premium on regional and bilateral trade agreements.
- Evaluate the risk related to commodity prices, since the Russia-Ukraine war has had an impact on commodity markets in terms of price increases and higher volatility. The war has also underlined the importance of energy security and of reducing dependence on Russia for key energy imports.
- It would be advisable to put into place an on-the-ground team who has knowledge of the local market for assisting in procurement from Czechia.