Our comprehensive assessment of Czech Republic's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Czech Republic, as well as the latest industry developments that could impact Czech Republic's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Czech Republic before your competitors.

Country Risk

Czech Republic Country Risk

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Core Views

  • We have revised down our forecast for inflation in the Czech Republic, and readjusted our expectation for monetary policy trajectory. We now expect the Czech National Bank to target a weaker koruna in the coming months, as deflationary risks mount and ECB easing looms over the horizon.

  • The ongoing debate in the Czech Republic over civil service reform will result in only modest modifications to the status quo by end-2014. This will darken public perceptions of the government's ability and willingness to address structural deficiencies of the state administration.

  • We reiterate our view that the country will continue to post modest current account deficits for the foreseeable future. The country's status as a regional safe haven will ensure that stable financial inflows continue to cover the country's external financing needs....

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Czech Republic Operational Risk Coverage (9)

Czech Republic Operational Risk

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The Czech Republic offers an attractive investment destination in terms of its logistics network, with a highly developed transport network and excellent utilities infrastructure ensuring the continuity of supply chains throughout the country. However, the country's overall score on the BMI Logistics Risk Index is dampened somewhat by the high cost of electricity and fuel and high levels of trade bureaucracy which mean that overall the Czech Republic slips down the rankings slightly, sitting in sixth position in Emerging Europe with a score of 61.8 out of 100.

Investors are subject to higher than average electricity and fuel costs in the Czech Republic due to a reliance on energy imports. This is partially mitigated by the quality of the utilities sector, and supply chains enjoy access to electricity and water networks throughout the country as well as high speed internet availability. In addition to the well developed...

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Czech Republic Crime & Security

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BMI View: The Czech Republic is a generally safe place for foreign business travellers, expatriates, and tourists, and foreigners are not at higher risk of crime than Czech citizens. The main threats to foreigners are from petty crime, especially pickpocketing, rather than indiscriminate acts of violence. The Czech Republic also has considerably less organised crime than newer members of the EU such as Bulgaria and Romania. This contributes to a regional outperformance in the BMI Crime and Security Index, in fourth place out of 30 Emerging Europe countries, with a score of 79.1 out of 100.

The risk of a terrorist attack occurring in the Czech Republic is low. The biggest threats emerge from organised crime and far-right neo-Nazi groups. Traditionally, the country's homogenous population meant that there were no aggrieved groups with reason to mobilise against the government. However, an...

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Czech Republic Labour Market

Czech Republic Logistics

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The Czech Republic's land-locked status means that supply chains are reliant on road and rail networks, meeting the majority of the country's supply chain needs as the Czech Republic's main trading partners are within the Schengen zone and in most cases just over the border. As a result, we award the Czech Republic a score of 61.8 out of 100 in the Logistics Risk Index, placing it sixth in the Emerging Europe region out of 30 states and 35 th in the world out of 140 states.

Supply chains in the Czech Republic are reliant on the road and rail networks for trade. The country offers good transport links with neighbouring states which benefits supply chains as Germany, Slovakia, and Poland account for its top three trading partners. In addition, access to EU funds has improved the quality of the transport network since the Czech accession in 2003, and projects to boost connectivity will continue in the medium term. In particular, the...

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Czech Republic Trade & Investment

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The Czech Republic faces few trade and investment risks due to its relatively open economy and harmonization of EU regulations. However, investors are exposed to increased risks and costs due to systemic corruption and poor contract enforceability. These risks are partially mitigated by favourable tax rates and attractive financial incentives. Overall, The Czech Republic places sixth in the region, with a score of 70.8 out of 100 in the BMI Trade and Investment Risk Index, between Slovenia and Latvia. The country is also competitive at the global level, in 33rd place out of 170 countries, just below Barbados.

The Czech Republic is a relatively open country for economic activity due to its market-oriented economy and tariff-free trade access across the European Union. Moreover the government offers generous financial incentives for foreign investors in the shape of tax breaks, cash grants and government assistance to...

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Czech Republic Industry Coverage (22)

Autos

Czech Republic Autos

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Passenger car sales in the Czech Republic in 8M 2014 came in at 125,695 units, an increase of 14.8% year-on-year (y-o-y). Export-led manufacturing growth has been strong throughout the year, increasing private consumption and the number of car purchases. BMI predicts a slowdown in sales growth in Q414 due to weaker emerging market demand and a weak eurozone recovery affecting exports. We expect total passenger sales to come in at 184,504 units in 2014, an increase of 12% y-o-y.

According to the Czech Automotive Association, total auto exports climbed 6.87% y-o-y in 8M14. An improvement in the sentiment towards big ticket purchases, such as autos, coupled with low base effects from declines in the same period of 2013, has driven the strong growth seen in the market over the year to date. Yet the export-led recovery is set to continue slowing down in Q4 on the back of slowing growth in emerging markets, especially China...

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Commercial Banking

Czech Republic Commercial Banking

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Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Czech Republic Consumer Electronics

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BMI View:   After a challenging period from 2011 to 2013 during which consumer electronics demand contracted in the Czech Republic there are indications of a resurgence in demand in 2014 - in line with our expectations. TV set sales we re expected to pick up in 2014 ahead of the FIFA World Cup, while data indicate sales of desktops and notebooks bounced back in H114, and smartphone and tablet sales continue to boom. These trends will reinforce the Czech Republic's position as one of the most lucrative in Central and Eastern Europe . However, there is downside risk, with the weakening of the koruna pushing up prices of imported products and acting as a drag on growth. Meanwhile the crisis in Ukraine results in heightened risk of cyber security incidents in the...

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Defence & Security

Czech Republic Defence & Security

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BMI View: The Czech Republic is to continue to benefit from its membership in both NATO and the EU, both in terms in the capability of its armed forces and the breadth and capacity of its defence industry. Budgetary constraints are to keep troop levels and budgetary allocation stagnant for the foreseeable future. This in turn will result in little growth in the domestic arms market, although international sales of training aircraft continue to perform well. As part of the EU and NATO, and with a small international presence, the Czech Republic has few threats to its security, although the rise of the far-right is an issue we continue to monitor.

Our long-held view for the coalition government to continue facing challenges over the course of its tenure...

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Food & Drink

Czech Republic Food & Drink

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BMI View:   High-frequency indicator readings in Q314 already lend support to our view private consumption is poised to slow in H214. Retail sales growth slowed to 6.2% y-o-y in July from 8.5% the previous month, while consumer confidence continued to deteriorate in August from the previous months. Growth in average real wages also exhibited signs of deceleration in Q214, expanding by 2.1% y-o-y from 3.1% the previous quarter. This would neutralise the positive effect of the almost flat rate of consumer price growth throughout H114 on consumers' purchasing power.

Headline Industry Data

  • 2014 per capita food consumption (local currency terms):  +1.0%; compound annual growth rate (CAGR) to 2018:+2.6%

  • 2014 alcoholic drinks value sales...

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Freight Transport

Czech Republic Freight Transport

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Following a year of mixed growth dynamics in different freight transport modes, BMI believes that 2014 will signal increasing volumes across the whole sector in line with improving economic outlook.

Total trade is projected to pick up in real terms, with our Country Risk desk forecasting a year-on-year (y-o-y) increase of 8.26% in 2014 following a growth of 0.33% in 2013.

Road freight is to continue to dominate the sector and is projected to grow by 5% in 2014. The mode, however, did not manage to defy the downturn and the European Union (EU) pledges of a decrease in road haulage across the region, with freight volumes expected to remain well below its 2007 level.

BMI notes that rail is the likeliest candidate in Czech Republic's freight transport mix to benefit from any diversification away from road.

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Information Technology

Czech Republic Information Technology

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BMI View:   W e already had a positive outlook for IT market growth in the Czech Republic in 2014, but this view has been bolstered by a recovery in the desktop and notebook market, as well as a stronger economic outlook . Higher levels of business and consumer confidence will see demand growth , while deferred purchases from the previous period of uncertainty , particularly in enterprise software and IT services, will add to momentum. The pick-up in growth will cement the Czech IT market's status as a regional leader in Central and Eastern Europe, with a strong domestic skills base, investment by international firms, local entrepreneurship and high penetration of devices and solutions. We identify tablets, hybrids/convertibles, enterprise software, the rapid...

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Infrastructure

Czech Republic Infrastructure

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BMI View:   The Czech construction sector continues to suffer from lack of investment due to the wider economic slowdown in the country . In the l onger term , the sector ' s strong fundamentals are forecast to return growth , but the power industry is likely to remain depressed following   the cancellation of the Czech utility CEZ's long-delayed tender for two new nuclear reactors .   S upport from the EU...

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Insurance

Czech Republic Insurance

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BMI View: Recent data released by the CAP (the insurers trade asso ciation) in relation to Q1 14 support s our view that premiums in life and non-life will grow at a very slow pace. The principle challenge in the sector is its highly competitive nature which has put downwards pressure on prices and rates. The leading players are able to leverage scale, brand, access to capital markets, product development know-how and multi-channel distribution (including, in many cases, close relationships with major banking groups). The main beneficiaries are the consumers, both households and companies who purchase insurance products. Most of the leading companies manage to achieve respectable profits ; however , our view is that intense competition...

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Medical Devices

Czech Republic Medical Devices

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Espicom Industry View: The Czech medical device market is expected to grow by a CAGR of 8.4 % over the 2013-2018 period, a longside increase s in GDP, imports and health expenditure . The amount of funding within the health sector may fall, however, due to the new coalition government's decision to abolish certain healthcare fees. The Czech Republic is heavily reliant on imported medical devices , although domestically manufactured products are of an increasingly good quality and remain competitive in terms of price.

Headline...

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Metals

Czech Republic Metals

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BMI View:   The Czech steel sector looks well placed to continue its recovery in 2014 following a strong increase in production during the first half of the year. However, we caution that weak domestic consumption growth will leave producers increasingly reliant on overseas demand going forward.

BMI's Czech Metals Report for Q4 2014 assesses the growth prospects for the country's steel sector during 2014 and presents medium-term growth forecasts for steel production to 2018. In Q3 we believe the country's metals sectors will begin to witness a gradual recovery in production levels, following two years of contraction in steel output. The report analyses the reasons for the recovery as well as the ongoing challenges faced by Czech Republic steelmakers over the medium term.

The Czech steel sector has...

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Mining

Czech Republic Mining

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BMI View: Coal is the mainstay of the Czech Republic's mining industry and we expect this to remain the case over our forecast period to 2018. The country also hosts a uranium mine and there is long-term potential for gold mining. We expect stagnation in the Czech Republic's coal production over coming years, ending the declines seen over the past decades.

The Czech Republic will remain one of Europe's largest coal producers as the country remains reliant on domestic coal output for power generation. The Czech Republic also exports coal to its European neighbours. Although Czech coal production has declined sharply over past years, we forecast stagnation in the years ahead.

Declining Contribution To GDP
Czech Republic - Mining Industry Value & Mining Industry As % GDP
...

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Oil & Gas

Czech Republic Oil & Gas

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BMI View : While a moratorium on shale gas exploration, the Czech Republic will remain highly dependent on imported oil and gas, mostly from Russia, as conventional hydrocarbons production potential is limited. With demand trends remaining relatively weak, a small increase in refinery utilisation rates should see relatively stable net refined products import needs throughout our forecast period.

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Headline Forecasts (Czech Republic 2012-2018)
  2012e 2013e 2014f

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Petrochemicals

Czech Republic Petrochemicals

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The Czech petrochemicals industry is on course for solid growth in 2014 and beyond in line with growth in key domestic plastic and chemicals converters, which primarily serve export markets. However, BMI's latest Czech Republic Petrochemicals Report warns that recovery is tenuous and depends on external markets and feedstock prices.

BMI estimates that in the first five months of 2014 chemicals output was up 7.5% year-on-year (y-o-y) while rubber and plastic was up 10.8% y-o-y. This was a marked improvement on 2013 growth rates when chemicals shrank 6.8% and rubber and plastics grew 4.6%. In H112, Unipetrol's petrochemicals segment profitability increased to CZK1.85bn from CZK1.41bn in H113. Improvement was driven by significant increase of sales volumes by 12% y-o-y from 792,000 tonnes in H113 to 885,000 tonnes in H114, due to higher utilisation of the steam-cracker and...

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Pharmaceuticals & Healthcare

Czech Republic Pharmaceuticals & Healthcare

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BMI View:   The pharmaceutical supply chain within the Czech Republic has undergone a period of flux over the last decade. The pharmaceutical market itself, originally dominated by domestic and regional generic companies, has been won over by larger multinationals with competitive pressures expected to continue to favour those with scale. While we expect the Czech market to stabilise in 2014, we note that depreciatory pressure on the Czech koruna could see incomes decline for multinationals that operate within the Czech Republic. In addition, policies that regulate drug prices even further and reduce the cost of medicines to the state healthcare system and private insurers will weigh heavily on the growth prospects of the Czech pharmaceutical market, even as the Czech economy rebounds in 2015. Despite these concerns, BMI maintains a more optimistic...

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Power

Czech Republic Power

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BMI View:   With the future of nuclear and renewables looking more and more uncertain in the country as the development of both sources experienced setbacks in recent quarters, questions about Czech energy security and emissions profile are becoming more pronounced. With aging domestic capacity scheduled to come offline over the coming two decades and EU regulations pressurising the country to lessen its dependence on coal, nuclear and renewables had appeared to be the preferred method to fill any future power gap. This is now in doubt , with the country showing inclinations to maintain an important share of coal-generated electricity in the mix.

Key Trends And Developments

  • Allowing for system losses (forecast at 5.83%...

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Real Estate

Czech Republic Real Estate

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BMI View:   The export-driven recovery seen within the Czech economy during 2014 has helped cultivate a more stable business environment and an increasingly attractive market for real estate development. The country ' s commercial real estate sector continues to be one the most established in the CEE region and there has been a healthy level of transactional activity in the office, retail and industrial segments. Despite this we caution that a number of headwinds such as high vacancy rates and a potential slowdown in export-demand may throw sand in the wheels of the Czech Republic ' s recovery.

A more favourable economic landscape has taken shape within the Czech Republic during 2014 which has given way to stable rental rates across all three of the office, retail and industrial...

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Renewables

Czech Republic Renewables

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BMI View : Concerns over the country ' s economic competiveness and previous difficulties with setting renewables subsidies at a sustainable level, has led the Czech Republic government to scale back, and almost abandon , its pursuit of renewable energy. W e therefore see limited opportunities in the Czech market at present, as cheaper fuel sources take priority. This is reflected in our muted non-hydro renewables capacity and generation 10-year forecasts to 2023 .

The country aims to develop its renewables industry so that it contributes at least 15-16% of the total energy consumption by 2030, a target that, considering the latest...

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Retail

Czech Republic Retail

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BMI View: As the economy makes a moderate recovery, international brands are keen on entering or expanding in the Czech Republic's retail market. A positive growth forecast with falling unemployment, a rise in consumer sentiment and rising wages will drive demand for consumer spending in the retail sector, aiding in its growth. The country's statistics office reported 8.2% year on year growth for retail sales in July . The electroni c goods subsector jumped by 29% with the growth of online retail and delivery services. International retailers Tosca Blu , Michael Kors , Von Zeiten all entered the market in H12014.

We expect to see...

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Telecommunications

Czech Republic Telecommunications

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BMI View: The Czech Republic telecoms market is one of the most advanced   in Central and Eastern Europe, with high penetration of both voice and data services .   However operators are now facing challenging conditions as price pressures threaten margins . The market has been under many of the same pressures as in neighbouring countries with market saturation; regulatory factors, such as cuts to mobile termination rates; and the impact of the eurozone crisis on macroeconomic performance acting as drags on performance. Furthermore, t he market is in...

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Tourism

Czech Republic Tourism

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BMI View: A slowdown in broader European economic growth as well as persistently slow domestic economic growth have led us to revise our predictions for the Czech tourism market downwards and we expect to see a slight decline in arrivals in 2014. This is likely to be a minor setback though as we expect positive developments across all of the key market indicators for the Czech tourism industry over the remainder of our forecast period, though faster growth in other countries may see the Czech Republic fall behind its regional rivals.

Despite a decrease in arrivals of 0.8% in 2014, we expect to see arrivals recover and rise by 600,000 between 2015 and 2018 to just below 8.0mn. The initial decrease is related to a sharp drop in arrivals from Russia as a result of the increasing political tensions between Russian and the EU as well as slower than anticipated economic growth in many of the Czech...

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Water

Czech Republic Water

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BMI V iew:   The Czech Republic's water sector has room for improvement , but overall is a modern and efficient sector. This is due, in part, to the high standards that are required to meet stringent EU regulations. As further modernisations continue, to water infrastructure and the sewage network, our forecast is that overall water consumption in the country will fall.

At present the Czech water sector offers a wide range of opportunities, in the development of infrastructure and in water dependant industries. The high standards achieved as the country worked to meet EU regulations have dramatically improved investment opportunities and the ongoing need for easily accessible water ensures demand for investment will continue. As the need for...

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