Post-Covid Prospects: Czech Republic
09 June 2021
Last year the Czech Republic saw its largest economic slump since the foundation of the Czech Republic in 1993, with GDP tumbling 5.6%.
The Czech Republic was the first European country to make the wearing of face masks mandatory. The first COVID cases were confirmed on 1 March 2020 and a nation-wide state of emergency was declared on 12 March. The restrictions on trade, services and movement which followed sent shockwaves through almost all sectors of the domestic economy. Increased public expenditure on healthcare, support for employees and employers in hard-hit sectors, and fiscal relief including wage compensation and cuts in personal income tax, meant that government spending ended 2020 with a deficit of 6.2%, versus 5.7% in 2019.
However, as global supply chains adapted to the Covid disruption, the scale of industrial shutdowns was much lower in the autumn and winter months of 2020, and the country’s sizeable export-oriented manufacturing industry rallied.
The first vaccines arrived in December 2020 and the ensuing rollout of the national vaccination plan and the Central Reservation System (CRS), has led to more than one-third of the population being inoculated as of the beginning of May 2021. Despite concerns that new variants of the virus may undermine the effectiveness of vaccines now being deployed, many expect the Slavic nation to recover by more than 3% year-on-year in 2021.
Louis Chan, Assistant Principal Economist (Global Research) at HKTDC, sat down with Anna Dupalová, Commercial Consul of the Czech Republic in Hong Kong, to discover her view on the Covid consequences and market prospects of the Czech Republic and how Czech companies are getting ready to work with Hong Kong partners to grow their business in Asia in the post-pandemic recovery.
Chan: How is the vaccination programme progressing in the Czech Republic? Do you have a timetable or a roadmap to indicate when the majority of the population will be vaccinated?
Dupalová: The Czech Republic was managing the coronavirus outbreak very well from the spring onwards, but the large number of patients began to strain our healthcare system in the autumn and winter months. Rapid rollout of vaccinations has therefore become a priority for the Czech government so that the country can reopen and its citizens can return to normal.
Following the arrival of the first Pfizer-BioNTech vaccines in late December 2020, we have started a two-phase vaccination plan and expanded the campaign to include Moderna, AstraZeneca and Janssen jabs. Priority has been given to healthcare professionals, the elderly (80+) and other high risk and vulnerable groups such as social service providers. More than 4.9 million doses have been administered in the Czech Republic as of 29 May 2021, with 42% of the population having received at least one dose and 15% being fully inoculated.
With the second phase of the vaccination plan starting on 1 June 2021, anyone with trvalý pobyt (permanent residence) in the Czech Republic, aged 16 or above, insured by the public health insurance system or one of the seven public insurers, will be eligible for free inoculation. By the second half of 2021, the vaccination coverage will have reached at least 60% of the target population.
There has also been encouraging progress on the EU digital Covid-19 certificate. This may be in digital or paper format and will attest that an individual has received a negative test result, been vaccinated or has recovered from the virus within the last 90 days. The expected 1 July rollout of the certificates gives us great hope of resuming the free movement of individuals within the EU, and perhaps with non-EU countries, in time for the summer tourist season.
Chan: What is the near- to medium-term outlook for Czech Republic’s major industries and trade, in view of the government support that is being provided during the pandemic? When are you expecting the vaccine-boosted recovery kick in?
Dupalová: The 5.6% fall in GDP year-on-year for sure makes 2020 the worst year for the Czech economy in modern history. When the first Covid-19 infections were confirmed in the beginning of March last year, the Czech government imposed the first nationwide lockdown between mid-March and mid-May. Many if not all industrial companies, given the scale of disruption to global supply chains, decided to suspend their production.
The country, like much of Central and Eastern Europe, has been fighting a tough battle against the coronavirus since October 2020, facing a second wave just before winter and a third wave around the start of the spring. The return of tough lockdown-like measures crushed hopes for a quick rebound and derailed the long-awaited recovery.
In spite of the difficult circumstances, the Czech economy has proved itself resilient in 2020. It is still too early to say which sectors will best survive the pandemic, but the private sector in general has been adapting particularly fast and well to the harsh business environment. Some sectors such as information and communication technology (ICT) and medical technology are already back to pre-pandemic levels. On the other hand, client-facing services such as tourism, hospitality and transport will take longer to bounce back.
A number of government-led support programmes aimed at mitigating the effects of the pandemic on businesses and spending played a significant role in keeping the economy alive. The employment support programme, ANTIVIRUS, helped businesses protect jobs by reimbursing employers for up to 100% of salaries paid after the state of emergency was declared on 12 March 2020, up to a cap of CZK 50,000. Other stimuli included one-off CZK 60,000 subsidies to the self-employed and guaranteed loans up to CZK 15 million.
Manufacturing industry has been driving the Czech economy during the pandemic. Exports were hardest hit in spring 2020 when demand for the automotive industry products, the country’s leading export sector, fell dramatically.
Following a record low of -32.9% in April 2020 and an almost as bad -23% in May, the Czech Republic registered a 13.7% year-on-year export drop in the first half of last year. But in the following months, most companies were able to adapt to the situation and return to growth, with exports rising 10.7% in November and 11% in December 2020.
The Czech economy is forecast to show growth of 3% this year and 3.8% in 2022, with the help of the successful inoculation programme, continued economic stimuli and gradual easing of the domestic and overseas restrictions. This will put us on course for a fully-fledged recovery by as early as 2022.
Chan: The Covid-19 outbreak has seen many businesses turn to e-commerce, whilst people have learnt to work, study, and exercise at home. What can you tell us of the digital transformation that has taken place in the Czech Republic since the onset of the pandemic? How might these behavioural changes change the consumer and industrial landscape in the Czech Republic?
Dupalová: In many ways, Covid has turned everybody’s life upside down. Measures such as virus testing, contact tracing and social distancing have greatly affected individuals and business operations, giving rise to a massive surge in the use of digital technologies as people adapt.
Billions of people across the world have been told to stay at home, making home offices and home schooling a new normal for many. However, some businesses were not ready for this, and have struggled to adapt their business operations to the new realities. The same applies to students and parents trying to adjust, when schools for more than 168 million  children globally have been completely closed for almost an entire year.
While digitalisation has long been a priority of the Czech government, the pandemic has drastically accelerated the process by helping dispel any lingering doubts about digital transformation. From businesses to schools, staying afloat during Covid-19 has required new approaches such as omni-channel commerce, virtual work from home arrangements and online learning.
In particular, the Covid‑19 outbreak has seen struggling businesses obliged to embrace e‑commerce and omnichannel marketing as the key sales and promotion channels into both domestic and overseas markets. Even people who were previously strongly averse to e-commerce have taken to online shopping. Reportedly, four out of five people aged between 18 and 80 in the Czech Republic are using digital services today for banking, apparel, grocery, etc., 1.3 million more people or 20% higher than the pre-Covid levels.
A prime example of the power of digital transformation is Rohlik, a Czech startup named after the country’s most popular pastry. The company has built an online grocery ordering and delivery business which combines regular groceries with fine foods and perishables. It procures the former wholesale or supplies them in concert with established brick-and-mortar sellers such as supermarkets. For the latter it works with small, local butchers, fishmongers, bakers, fruit and vegetable sellers.
The Prague-based online grocer has seen its revenues surge by 101% in 2020 to €300 million, supplying 750,000 customers across the Czech Republic, Hungary and Austria with some 17,000 products in its online store. It now plans to expand its footprint into new markets such as Germany, Poland and Romania after raising €190 million from investors in March 2021.
Chan: Global trade and investment was weakened by the pandemic and many travel and business plans were shelved or postponed last year. Looking forward to 2021 and beyond, what do you see are the most promising sectors for Czech Republic-HK collaboration?
Dupalová: Czech businesses have adapted relatively quickly to the difficult conditions created by the spread of the virus. Virtual presentations, participation in online trade fairs and digital marketing are just a few of the tools that Czech companies have relied on to weather the pandemic storm.
The fact remains, however, that despite all the possibilities modern technologies have provided, personal contact and mutual trust building between business partners is irreplaceable. We very much look forward to Czech companies being able to join trade fairs, conferences and other business and leisure events in Hong Kong once the travel restrictions are eased.
Another good thing to come out of the “black swan” is that it has exposed the importance of production and market diversification. Until today, the majority of Czech exports, led by machinery and automotive parts, stay in the European market. Opening up new, non-European markets for Czech products will be a priority of the Czech government and its economic diplomacy for the post-Covid future.
With regard to specific sectors, world-famous Czech glass companies, such as Lasvit and Preciosa, combine modern technologies and the traditional art of hand-blown glass to create a range of stunning installations, including chandeliers hand‑made from Bohemian crystal, a pristine clear glass indistinguishable from natural crystals. These chandeliers have long adorned the lobbies of luxury hotels and palaces around the world, and can be seen in the opulent top‑floor, Michelin‑starred Tosca restaurant at the Ritz-Carlton hotel in Hong Kong. During the several lockdowns, we have also seen a growing demand for sustainable and organic personal care and cosmetics products, as well as the alcoholic beverages that Czech companies have long been marketing in Hong Kong.
As a lasting Covid legacy, the greater emphasis on sustainability will give green solutions providers and eco-technology companies many opportunities, especially in the spheres of green and smart mobility and construction, both in Hong Kong and the Czech Republic. More promotion would help raise the awareness of Hong Kong’s opportunities among the Czech startup ecosystem, especially for the FinTech and gaming sectors.
Chan: How about the Greater Bay Area (GBA) Initiative? Are Czech companies keen to make inroads into the GBA? How can Hong Kong companies best help?
Dupalová: As a matter of fact, many Czech companies have already been operating in the GBA and profiting from the initiative’s dynamic development of a Pearl River Delta powerhouse that links the Hong Kong and Macao Special Administrative Regions and nine other cities across Guangdong Province. The transformation of the region – which encompasses a massive market of 70 million potential customers with a combined GDP of US$1.6 trillion – represents a huge potential market for Czech companies.
Czech businesses are already well aware of the GBA’s industrial and technological capacities. Hong Kong, given its openness, transparency and business-friendliness, is a perfect entry point for Czech companies seeking to make inroads into the GBA and looking for buyers, suppliers or partners.
For many new-to-market Czech companies, high-tech, high-pressure Hong Kong would also be the perfect testing ground for location of their top-notch technology and inventive business ideas in the GBA and the greater mainland China market. One example is the medical equipment and solutions sector, which offers the possibility of introducing Hong Kong-registered drugs and medical devices into designated healthcare institutions operating in the nine mainland cities of the GBA.
- Finance & Investment
- Eastern Europe
- Czech Republic