Økonomiske studier
Czech Republic

Czech Republic

Population 10.5 million
GDP 17569 US$
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Synthesis

major macro economic indicators

  2014 2015  2016 (e) 2017 (f)
GDP growth (%) 2.7 4.5 2.4 2.7
Inflation (yearly average) (%) 0.4 0.3 0.5 1.0
Budget balance (% GDP) -1.9 -0.4 -0.6 -0.8
Current account balance (% GDP) 0.2 0.9 1.5 1.0
Public debt (% GDP) 42.2 40.3 40.0 39.0

 

(f) Forecast

STRENGTHS

  • Central geographic position at the heart of industrial Europe
  • Strongly integrated into the international, particularly German, production chain
  • Preferential destination for foreign direct investments in Central Europe
  • Considerable industrial potential
  • Sound public accounts and banking system
  • Low external energy dependence

WEAKNESSES

  • Small, very open economy: exports account for 84% of GDP
  • Highly dependent on European demand: 63% of exports are to the Euro zone, one third to Germany
  • Automotive occupies large share of the economy
  • Lack of rapid transport links with the rest of Europe
  • Ageing population and lack of skilled workforce

RISK ASSESSMENT

Growth sustained by internal and external demand

After exceptional performance in 2015 following a surge in public investment due to the need to use the remaining funds available under the European funding programme, which was reaching maturity, growth returned to a pace in line with potential in 2016. In 2017, household demand will remain buoyant, carried by the dynamism of the job market and wages, the availability of abundant and cheap credit, as well as the introduction of family benefits aimed at boosting the birth rate. With 2017 being an election year, fiscal largesse cannot be ruled out. External demand will benefit from robust consumption and German exports, as well as from the healthy state of the European automotive market on which the country greatly depends. Because of the large share of exports in the Czech economy, this will impact positively on jobs and household demand. However, if the lower limit on the koruna against the euro, in force since November 2013 is abandoned, the resulting appreciation could lead to slower exports and faster import growth, which would reduce trade's contribution to growth. Automotive, which accounts for 28% of industrial production, 20% of exports of goods and 10% of GDP, are expected to continue to prosper. As for construction, it is expected to benefit from the return to normal regarding European funding, which will generate an average annual surplus of 2% of GDP until 2022.

 

Excellent budget position  

In two years (2013-2014) of austerity, the Czech government has restored its public finances. The fiscal deficit fell below 1%. Despite a slight easing expected in 2017 (increase in civil service salaries and pensions, recruitment of more teachers…), no doubt linked to the holding of elections in 2017, the position will remain satisfactory. The debt burden, already moderate, will continue to fall. Despite the influx of foreign capital, attracted by the prospect of an appreciation of the koruna, 75% will still be held by local investors. This success explains why 80% is denominated in koruna and issued at negative rates on short maturities.

 

Current account balance in equilibrium dependent on German economy and automotive

The trade balance runs a structural surplus (4.7% of GDP in 2015) thanks to the strong integration of Czech industry into the European production chain, especially that of Germany, and automotive. Engineering, household appliances and electrical equipment also make a positive contribution. Services generate a small surplus (1.7%) thanks to tourism. The income deficit (5.5%) is explained by the considerable stock of FDIs. Together these factors make for a slight current account surplus, which could be affected by a fall in the trade surplus. The potential for it to deteriorate is, however limited, as a drop in exports would be accompanied by a drop in imports and dividend repatriations. Moreover, European funds and foreign capital would easily help cover any deterioration. Despite its significant level (70.7% of GDP), the external debt presents a low risk. It is now stable and is in large part composed of intragroup commitments, loans linked to FDIs, short-term commercial loans and deposits made by foreign banks with their local subsidiaries (87% of bank assets), which by their nature are fairly fixed. Allowing for these commitments, the external debt level is only 37.5%.

 

A coalition government until the October 2017 elections

The electoral law, which includes a high element of proportional representation, means there is no clear majority, forcing the formation of multi-party coalition governments. But, despite frequent disagreement within government, Parliament generally sits for the full term, if need be, thanks to the formation of a technocratic government. This is because 3/5 of the votes are needed to ask the President to dissolve the Chamber. Furthermore, the Communist Party, traditionally the third political force in the country, is systematically excluded from the national coalitions. Accordingly, following the corruption scandals which tainted the previous centre-right majority, the early parliamentary elections of October 2013 brought to power a coalition dominated by the Social Democratic Party (CSSD) and the centrist anti-corruption party, the ANO 2011, with the office of prime minister and deputy prime minister in charge of finance being held by their respective leaders: Bohuslav Sobotka and Andrej Babis, a media magnate with significant assets in the chemical and food industries too. Despite the tensions over differences on fiscal policy, the timetable for adopting the euro, the acceptance of refugees, Andrej Babis's conflicts of interest and the ANO's victory in the October 2016 regional elections, the coalition is expected to last until the elections in October 2017. 

 

Last update : March 2017

Payment

Czech law limits cash payments to a maximum of CZK 270,000 (approximately EUR 10,000). Purchasers who wish to make payments that exceed this limit must pay the entire sum via wire/bank transfer.

 

Bank transfers are by far the most widely-used means of payment. The SWIFT system is fully operable in the Czech Republic, and provides an easier, quicker and cheaper method for handling international payments. The Czech Republic is part of the SEPA system, simplifying bank transfers inside the European region.

 

Cheques for domestic transactions are not widely used. Bills of exchange and promissory notes are commonly used as a security instrument, which present the purchaser with the option to access a fast-track procedure for ordering payment by court (under certain legal conditions).

 

Electronic invoices are widely accepted.

 

Debt collection

To ensure the recovery of a debt in case of default, creditors should keep all documentation related to the transaction. This includes the original (written) contract, any documents related to the transaction (e.g. invoices and confirmed delivery notes, such as internal delivery notes, CMRs , CIMs, bill of lading, airway bills, packing lists, etc.), individual orders, and any other relevant documentation and/or correspondence.

 

The main factors influencing effectiveness in debt collection are the age of the debt (the earlier the start of collection, the larger the chance for a successful recovery) and the reason for non-payment.

 

The more typical reasons for non-payment, with their associated probability of successfully settling the debt, are as follows:

  • administrative mistake (very high probability of successful collection)
  • secondary payment inability (high probability of successful collection under condition that the debtor´s own outstanding will be paid by its customers (debtors)
  • dispute (depends on mutual negotiations and solution)
  • debtor´s intention not to pay (very low probability of successful collection, legal action recommended)
  • insolvency as objective status (negligible probability of successful collection)

 

Amicable phase

Amicable debt collection is recommended, because it remains cheaper for creditor compared to legal proceedings. Amicable settlements are also enforceable in court.

 

Legal proceedings

The costliness and length of average legal proceedings is comparable to European standards.

 

Average court costs total 20 to 25% of the nominal value and include:

  • A court fee of 5% and a minimum value of CZK 1,000
    • This is reduced to 4% and a minimum of CZK 400 when the plaintiff applies for an electronic payment order,
    • Lawyers’ fees of (approximately) 15%
    • Other costs and other costs of (approximately) 3%
      • e.g. expert testimony, translation and interpretation

Fast-track procedure / Order to pay (platební rozkaz)

This is a practical and rather short procedure, outlined in sections 172 - 175 of the Code of Civil Procedure (občanský soudní řád, CCP).

 

The judge, convinced of the merits of the claim and without hearing the case, issues a payment order which is served to the defendant, who may either accept it or file a statement of opposition against it within fifteen days of its service.

 

If the debtor opposes the debt, then the process continues as standard court proceedings.

 

If the legal action duly described and substantiated the creditor’s claim, the court can issue an order to pay, even if the creditor has not requested such an order. It takes on average three months for a decision to be made, ranging from a minimum of two months to a maximum of six months.

 

Ordinary procedure

Ordinary proceedings takes place after the defendant has disputed the claim during the platební rozkaz or by filing a dispute directly via the courts. Ordinary proceedings are partly in writing (parties filing submissions accompanied by all supporting case documents), and partly oral (both creditors and debtors present their cases during the main hearing). In practice, ordinary proceedings typically last from one to three years before the court renders a final and enforceable judgement.

 

On the 1st July 2009 onwards (Act No. 7/2009 Coll.), the CCP was amended to introduce more digital options in the justice process, so as to lessen the burden of judges and ensure the prevention of delays in proceedings. Since this amendment, all correspondence from Czech authorities to legal entities is delivered electronically via registered data boxes with special legal regulations (Act No. 300/2008 Coll., effective as of 1st July 2009).

 

Enforcement of a Judgement


Judicial enforcement is reserved only for matters specifically listed in the law, such as family law. All monetary claims stemming from business relationships are enforced by a judicial executor (soudní executor) under Act No. 120/2001 Coll. (exekuční řád, the Execution Act).

 

Enforcement by judicial executor is considered to be more effective, because the executor is a private-sector entity whose fees depend on a successful enforcement. A specific fees schedule applies based on the amount concerned by the execution.

 

As part of the European Union, enforcement of foreign awards issued by a European Union member state will benefit from advantageous enforcement conditions, such as the EU Payment Order or the European Small Claims procedure. Foreign awards rendered by non-EU countries can be recognized and enforced, provided that they have gone through the exequatur procedure under the Czech Private International Law and Procedure Act.

 

Insolvency proceedings


The insolvency act introduces new methods and faster process, with single proceedings where the court decides on three particular solutions:

  • Reorganisation
  • Bankruptcy
  • Debt clearance (or in other words, discharge of debts)

An insolvency petition can be lodged by either debtors themselves or their creditors, but a creditor must provide unambiguous evidence to support its claim, with one of the following:

  • An acknowledgement of debt  (with the certified signature of the debtor or its representative)
  • An enforceable judgement
  • An enforceable notary act
  • An enforceable executor´s act,
  • Confirmation of auditor or expert witness or tax advisor

The creditor must in addition prove the existence of other creditors. Creditors are liable for damages caused by filing a bankruptcy petition where the conditions of insolvency were not met.

 

All insolvency petitions are recorded in an insolvency register (insolvenční rejstřík) kept by the Ministry of Justice, where all important information on insolvency proceedings is published (sections 419-425 of the Insolvency Act). This also allows for insolvency proceedings to remain transparent.

 

Reorganization proceedings

Reorganization is a method of resolving insolvency that aims to preserve the debtor’s business, while granting satisfaction to creditors. Insolvent debtors may initiate proceedings, but debt restructuration proposals must be approved by the court, with periodical inspection of its fulfilment by the creditors. The management retains the right to manage the business.

 

Bankruptcy proceedings

Bankruptcy is a court-ordered method of resolving insolvency, whose aim is to monetize all assets of debtor and thus obtained yield to distribute between creditors who have lodged their claims into the proceedings. The authorization to dispose of debtor´s assets and to sell those assets is granted to a bankruptcy trustee who is appointed by court. At this point; the business declared bankrupt is no longer allowed to conduct business operations independently.

 

Debt clearance

Used mainly by individuals (non-entrepreneurs), this is a method of resolving insolvency which presents an alternative to declaring bankruptcy. The Insolvent debtor clears the debt, but under Court control he is obliged to pay only a reduced percentage of total debts.  

 

 

Liquidation proceedings

 

The liquidation procedure begins once it is decided that a company is to be wound up. Either the management or the court appoints a liquidator in charge of liquidating the company’s assets and collecting receivables. Creditors must register their claims within 90 days following publication of the court’s decision, in order to get satisfaction during the liquidation proceedings. All claims of creditors must be fully satisfied in liquidation proceedings.

 

It is important to note that liquidation proceedings are not considered as a method of insolvency in Czech law: in the event that the liquidator finds there are not enough assets to satisfy all claims during liquidation, he is obliged to file a petition for insolvency. At this point, the liquidation turns into insolvency; a separate proceeding.

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