Czech Republic - Economic development



Post-communist economic recovery has been implemented by development of the private sector, particularly in the trade and services areas, increased exports to industrialized nations, control of inflation, and achievement of a positive trade balance. The most promising growth sectors are those involving advanced technology, environmental protection, biotechnology, and, generally, high value-added production. At the end of 1996, approximately 80% of the Czech Republic's large companies had been privatized, most via voucher privatization, through which nearly six million Czechs bought vouchers exchangeable for shares in companies that were to be privatized. By 1997, however, the recovery had petered out and the Czech Republic plunged into recession which lasted through 1999. Most analysts blamed the downturn on an incomplete restructuring.

In 2002, the non-private sector accounted for only 20% of business; however, the state has retained minority shares in many heavy industrial enterprises, and many large firms were placed under the control of state-owned banks due to voucher privatization. (Bank privatization was in the completion stages in 2003.) The Czech Republic was slated to join the European Union (EU) by May 2004, and the EU has contributed significant resources to prepare the country for accession, including speeding administrative, regulatory, and judicial reform. The government is faced with high unemployment; a need for industrial restructuring; transformation of the housing sector; reform of the pension and healthcare systems; and a solution to environmental problems. The decline in industry's contribution to the economy has led to factory closings and job losses. Real gross domestic product (GDP) growth increased to 2.2% in the first quarter of 2003, despite the global economic recession and in part due to high household consumption. Growth was expected to climb to 4% in 2004. Inflation was low in 2003, as were interest rates.

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