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Czech Republic

The Czech Republic also loses in the current difficult geopolitical situation and the tension between the West and Russia. The consequences will be direct (ex.: less Russian tourists) and indirect, resulting from slower economic development of the region as a result of the crisis. After a period of two years of recession, GDP growth rose above zero, reaching the end of the 2013, the level of 1.2%.

The first quarter of 2014 this growth was continued, and the rate of economic growth increased up to 2.5%. The causes of changes in the growth rate of GDP at the end of 2013 and 2014 were recovered by exports and industrial production. This is related to the increased demand for goods produced in the Czech Republic, among others. In addition, the increase in GDP in the fourth quarter of 2013 received temporary factors, such as stock growth of tobacco companies in connection with the planned rise of excise tax rates in January.[1]

In the second quarter of 2014, Czech economy grew by 2.6 percent, higher than in the Eurozone, in which real GDP increased by 0.7 percent, Miroslav Singer, head of the Czech National Bank (ČNB) found the relatively rapid development of the Czech Republic as proof that the Czech results do not depend entirely on external conditions. An important component of the Czech GDP is domestic demand, but we think that the Czech economy is relatively poorly insulated from the negative external factors. The impact of lower external situation had already manifested itself in the second quarter as growth slowed sharply in exports and increase quarter to quarter was 0.2 percent, the least among the Eurozone countries.[2]

Yet prevailing economic recession in the Czech Republic and abroad, as connected with the fall in demand, negatively affected the value added gross mainly in the manufacturing industry. Worse than in the same period of the previous year, was also reported in wholesale trade, agriculture, energy, telecommunications and health care. Despite the unfavorable economic situation, the Czech Republic is consistently working to attract investment into the country. “Czech Invest” agency in 2013 intermediated for the acquisition of the investment of nearly 48 billion CZK (approx. PLN 7.3 billion) to the Czech Republic, twice more than in 2012.

The most active investors in the Czech Republic were members of domestic investors in 2013, or the Czech branches of foreign investors who have already invested in this market. As it is clear from the statistics of the Czech Invest agency, 78% of the total number of 110 projects through the agency in 2013 were expansions. Foreign direct investment and domestic investment, which was realized with the participation of the “Czech Invest” last year, will bring nearly 48 billion CZK and help to create more than 10.5 thousand of new jobs.

The Minister of Industry and Trade of the Czech Republic Jan Mládek reported that the interest of foreign investors in the Czech Republic 2013 before the crisis was the highest since 2007. Minister Mládek associates the growth of interest in the gradual improvement with the economic situation in the European market. Ondřej Votruba, acting director of the “Czech Invest” agency, noted that the growth of investor interest helped to make amendments to the regulations on investment incentives from the second half of the 2014. It is already known, as defined in the European Commission's new rules on state aid, which will allow to reduce support for large enterprises from 40 to 25%. Votruba indicates that it may be a factor in accelerating of investment decisions.

Most of last year's foreign investment projects in the Czech Republic come from Germany (13 projects with a total value of CZK 5.9 billion). It's up to those projects that have contributed to the traditional advantages of investment in the field of transport. Another group of active investors were Swiss companies (8 projects totaling $ 2.3 billion CZK) and American companies (7 projects with a total value of 5.2 billion CZK). Domestic investments in 2013 amounted to more than half of all investment than obtained from the CzechInvest's mediation (60 projects worth 24.7 billion CZK). In addition to producing of means of the transport sector, funds have also invested in engineering and industrial rubber products and plastic stuff. Head of “Czech Invest” expects positive results, as in 2014, investors will have to take into account the new rules on state aid. Following the changes in these rules, there shall be prepared amendments to the Czech Law on investment incentives. To compensate for the lower value of the aid for investors Czech government is planning to introduce a reduction of contributions from salaries or an exemption from the property tax.

[1] Polish National Bank, The economic situation in the countries of Central and Eastern Europe, 2014

[2] http://www.obserwatorfinansowy.pl/tematyka/makroekonomia/rosja-wplywa-na-wzrost-gospodarczy-w-czechach