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- GDP (PPP):
- $285.0 billion
- 1.7% growth
- 1.6% 5-year compound annual growth
- $27,062 per capita
- Inflation (CPI):
- FDI Inflow:
The Czech Republic’s economic freedom score is 70.9, making its economy the 29th freest in the 2013 Index. Its overall score is 1.0 point better than last year, with substantial increases in labor freedom and the management of government spending offsetting a decline in freedom from corruption. The Czech Republic is ranked 15th out of 43 countries in the Europe region, and its overall score is higher than the regional and global averages.
The Czech economy’s ongoing transition to greater openness and flexibility has been facilitated by a decade of substantial restructuring. Open-market policies have sustained global trade and investment flows and enabled the economy to capitalize on regulatory efficiencies achieved through earlier reforms. Competitive tax rates have encouraged the development of a growing entrepreneurial sector. The government is placing a high priority on fiscal discipline and striving for budgetary balance after years of fiscal deficits.
The Czech Republic has weathered the impact of the global economic downturn and the European sovereign debt turmoil relatively well, with the economy demonstrating a high degree of resilience. However, lingering corruption increases the overall cost of doing business, and continued reform to strengthen the foundations of economic freedom will be indispensable in ensuring vibrant economic development in coming years.
The Velvet Revolution of 1989 peacefully overthrew a Communist dictatorship and led to the election of dissident playwright Vaclav Havel as president of a democratic Czechoslovakia. The Czech Republic separated from Slovakia in the “velvet divorce,” becoming an independent nation in 1993 and joining the European Union in 2004. Prospects for adoption of the euro are uncertain because of the EU economic crisis. The Czech Social Democratic Party was defeated in the May 2010 elections, and a center-right coalition under Prime Minister Petr Necas is in power. The government is trying to pursue pension reform and other government austerity measures. Slowing exports and flat domestic demand are holding back economic growth.
Property rights are relatively well protected by law through an independent judicial system. Contracts are generally secure, but commercial disputes can take years to resolve. Although corruption remains a cause for concern, the parliament increased prison sentences for bribery in 2011 to up to 10 years for officials, and police have been given expanded tools such as wiretap authority to investigate such crimes.
The income tax rate is a flat 15 percent, and the standard corporate tax rate is 19 percent. Other taxes include a value-added tax (VAT) and an inheritance tax. The overall tax burden equals 34.9 percent of total domestic income. Government spending has stabilized at about 43.4 percent of total domestic output. The budget has been in deficit, driving public debt to over 40 percent of GDP. The euro crisis forced deficit-cutting measures on the government in 2012.
The streamlined regulatory process has become more supportive of entrepreneurial activity. Recent reforms have reduced both the cost and the number of procedures required to launch a company, although the pace of reform has slowed in comparison to other comparable economies. The labor market is relatively flexible. Inflation decelerated as the economy contracted in 2012, but some goods and services remain subject to price controls.
As with other European Union countries, the trade-weighted average tariff rate is a low 1.6 percent. The investment regime is relatively competitive, and foreign and domestic firms are treated equally. Most major state-owned companies have been privatized with foreign participation. The financial sector, diversified and competitive, has shown its resilience in maintaining capital levels and liquidity.