1st June 2020

2020 European Semester: European Commission Recommendations for Czechia

According to the European Commission, the current crisis has shown the need for crisis preparedness plans in the health sector, which include in particular improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies. They are key elements for developing broader crisis preparedness plans. 


The socio-economic consequences of the pandemic are likely to be unevenly distributed across regions due to different specialisation patterns. Therefore, the current situation entails a substantial risk of widening regional and territorial disparities within Czechia, or creating new territorial disparities at sub-regional level, aggravating also the already observed trend of widening disparities between the Karlovarský and Ústecký regions and the rest of the country. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,3% of gross domestic product (GDP) in 2019 to a deficit of 5,1% of GDP in 2020. The deficit is projected to decline to 4,1% of GDP in 2021. After decreasing to 30,8% of GDP in 2019, the general government debt-toGDP ratio is expected to increase to 37% in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related to the COVID-19 pandemic.

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Czechia has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amount to 4% of GDP. The measures include compensatory tax bonuses and remission of social and health insurance obligations for six months for the self-employed (1% of GDP), a short-term working scheme (1% of GDP), remission of personal and corporate income tax advance payments due in June 2020 (0,8% of GDP) and health-related measures (0,7% of GDP). In addition, Czechia has announced  measures that, while not having an immediate direct budgetary impact, will contribute to support liquidity to businesses. They include mostly guarantee schemes to provide loans to SMEs and large enterprises. However, the Convergence Programme does not quantify the contingent liabilities linked to those new measures. Most of the measures underpinning the Programme were also included in the Commission 2020 spring forecast. A few measures which could not be quantified or were extended beyond the cut-off date could not be included. Overall, the measures taken by Czechia are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.


Based on the Commission 2020 spring forecast under unchanged policies, Czechia’s general government balance is forecast at -6,7% of GDP in 2020 and -4,0% in 2021. The general government debt ratio is projected to remain below 60% of GDP in 2020 and 2021.

Throughout 2019 and early 2020, Czechia’s labour market remained robust, with most indicators showing positive outcomes. The employment rate continued to rise and unemployment fell to its lowest rate ever. Yet, according to the Commission forecast, the latter is expected to rise to 5.0% in 2020 and slighlty decrease to 4.2% in 2021.


Czechia is among the countries that could be particularly affected by technological change and that need significant investment in this area. Digital transformation will require support, including in industry and service sectors, through targeted investment in smart solutions and skills. The target for full fixed broadband coverage has been reached but mobile broadband remains relatively expensive. Delays to infrastructure development could particularly affect vulnerable groups and structurally weak regions at greater risk of being isolated. This might have also negative consequences in the epidemic monitoring and control. To address connectivity needs, investment is needed in very high capacity networks, fixed and mobile and appropriate demand-side measures. The timely assignment of 5G spectrum under predictable conditions conducive to investment will be essential to achieve this.


The production of renewable energy is below the EU average. The sector lacks financial incentives and an appropriate legal and institutional framework to support its further development. There also seems to be a low awareness about the wider benefits of energy efficiency. 


Access to conventional finance is above the EU average, but risk financing is less developed. Funding for high-risk domestic enterprises, especially at seed and later development stage remains scarce. 


The COVID-19 lockdown measures have put a strain on supply chains and many businesses have been unable to operate, while also lacking liquidity reserves. The automotive and the services sectors have been affected most. Market surveillance activities are spread over too many authorities and cooperation and coordination are not optimal. Official schemes to provide firms with state guarantees have been quickly oversubscribed. There is scope for better coordination and faster processes to channel support to companies. 


Czechia’s public sector performance and government effectiveness rank below the EU average. According to international indicators, it performs relatively well on access to government information in policymaking. It performs less well on the professionalism of the civil service, transparency of government and control of corruption. Better strategic planning and inter-ministerial coordination, and less fragmentation in local government would improve the efficiency of public administration. The procurement framework has improved but may warrant further fine-tuning. Despite slight improvements, corruption remains a concern for businesses and may further hinder economic activity. Adoption of several anti-corruption measures like the bill on lobbying or on whistleblower protection is still pending.


>> Read full report by the European Commision.



Members of the American Chamber of Commerce in the Czech Republic