Czechia (Czech Republic)

Czech economy recovers despite challenging external environment

After several years of underperforming its regional peers, the Czech economy has entered an expansion phase. The recovery is unfolding despite ongoing stagnation in Germany (a key trading partner) and fiscal consolidation. The main driver of this acceleration has been a rebound in private consumption. Households have reduced their saving rate – which nevertheless remains above pre-pandemic levels – while benefiting from rising real wages. Moreover, the early start of the monetary easing cycle has significantly boosted consumers’ spending capacity. Gross fixed capital formation is also gradually recovering, with the most recent quarters recording a positive contribution to GDP growth. This rebound is underpinned primarily by a strong increase in construction output, particularly in civil engineering. Although the Czech Republic has been allocated one of the lowest amounts in the CEE region under the Recovery and Resilience Facility (RRF), accounting for approximately 9% of GDP, it has been highly efficient in absorbing these funds, which has supported the recent recovery in investment. Given the high export component of the Czech economy, Germany’s prolonged stagnation and escalating global trade tensions continue to weigh on growth and exert pressure on the industrial sector.

Looking ahead to 2026, economic growth is expected to accelerate further, supported by robust private consumption and a growing contribution from investment. Households continue to maintain a relatively elevated savings rate, suggesting additional scope for increased spending. Another tailwind may come from the investment side. Although Czechia has been effective in absorbing EU funds (approximately EUR 11 billion out of a total EUR 30 billion allocated from Cohesion Policy and the RRF have been disbursed so far), a substantial portion still remains to be used before the end-2026 deadline. Combined with planned increases in public expenditure, this should make investment a key driver of growth in the coming year. However, a concerning development is the recent rise in unemployment, which can be largely attributable to weakness in manufacturing. Unless this trend stabilises, it risks undermining consumer confidence.

Following the completion of its monetary easing cycle, the Czech National Bank (CNB) has held back from making any further interest-rate cuts and is holding its key two-week repo rate at 3.50%. CNB Deputy Governor Jan Frait has stated that the current policy stance is now broadly neutral for economic activity. Headline CPI inflation has been stable, near the CNB’s 2% target. However, the recently announced reductions in regulated energy prices and retail gas tariffs, together with continued appreciation of the Czech koruna, are expected to drive inflation below 2% in 2026. This disinflationary impulse could create scope for renewed policy easing. A key upside risk to the inflation outlook remains the degree of fiscal expansion. Several Monetary Policy Committee members have explicitly highlighted the possibility that a looser fiscal stance could sustain higher core inflation and thereby complicate or delay future interest-rate cuts. The CNB is therefore likely to maintain a data-dependent and cautious approach in the period ahead.

Shift away from earlier fiscal consolidation

The Czech Republic has undergone fiscal consolidation since 2023, prompting a decrease in the public deficit from 3.7% in 2023 to below 2% in 2025 on an estimated basis. The consolidation occurred despite an increase in military spending. In the upcoming year, the budget will be an interplay between aspirations of new government and institutional factors. The current coalition agreement envisages cutting the corporate tax to 19% (reverting the hike to 21% in 2024), introducing mortgage subsidies and reinstating certain tax breaks. At the same time, the agreement aims to keep the deficit below 3%. As a result, the fiscal stance will turn from restrictive to mildly expansionary. Another factor on the revenue side will be a phase-out of the windfall tax on energy companies. In theory, the national domestic rules should bring the deficit to below 1.75% in 2026 but given the government’s political aspirations, they will be most likely softened.

The ongoing stagnation in the German economy continues to weigh on Czech exports given the country’s strong integration into German supply chains. Nevertheless, Czech exporters have successfully diversified part of their activities toward alternative markets, notably the UK, France and Poland. At the beginning of 2025, exports received a significant boost as a result of stockpiling by US companies ahead of incoming tariffs. After the first three quarters of 2025, the current account balance has normalised, showing only minimal growth compared to the previous year. Looking ahead, the ongoing recovery – supported by improving investment activity and moderate fiscal expansion – is expected to drive import growth in the coming year, which will likely crimp away some of the current account surplus. Furthermore, on back of the European Union’s ongoing remilitarisation efforts, the defence industry is poised to play an increasingly important role in shaping the Czech Republic’s export profile.

Babiš-led ANO returns to power, signalling a change in policy direction

As anticipated, the October 2025 parliamentary elections in the Czech Republic delivered an outright victory for the right-wing and Eurosceptic ANO movement, which secured 34.5% of the vote under the leadership of former Prime Minister Andrej Babiš, thereby ending the tenure of the centre-right, pro-European Spolu coalition led by outgoing Prime Minister Petr Fiala. ANO’s campaign centred on rejecting continued fiscal consolidation measures and adopting a more assertive posture toward the European Union and the Ukraine policy. Falling short of an absolute majority, ANO formed a governing coalition with the far-right, Eurosceptic Freedom and Direct Democracy (SPD) party and the populist Motorists party, giving the incoming government a majority of 108 out of 200 seats in the Lower House.

The newly formed coalition has reached consensus on broad policy guidelines aimed at reshaping the nation's economic, social and environmental landscape. Central to their agenda is staunch opposition to select European Union initiatives, including the Green Deal, the proposed ban on combustion engines and the migration pact, which points to a wider Eurosceptic trend. Economically, the coalition pledges to terminate ongoing fiscal consolidation efforts, refrain from adopting the euro and revoke recent tax hikes to alleviate pressure on businesses and households. In terms of social reforms, they intend to cap the retirement age at 65, thereby reversing the previous administration's reforms that would have permitted gradual increases over the coming decades. To safeguard energy affordability – a key part of the campaign – the government will pursue reductions in distribution and transmission fees, and introduce subsidies for renewable sources.

The formation of a new coalition government is also likely to bring notable shifts in the Czech Republic’s foreign policy and international relations. Andrej Babiš has long been a strong enthusiast of the Visegrád Group – the regional cooperation group comprising Czechia, Poland, Hungary and Slovakia. With Babiš returning to power alongside Viktor Orbán in Hungary and Robert Fico in Slovakia, the three countries may increasingly coordinate positions characterising scepticism towards further centralisation of EU authority and a more restrictive approach to issues such as migration policy and military/financial support for Ukraine. Nevertheless, Babiš has demonstrated considerable pragmatism during his previous tenure as prime minister (2017–2021), suggesting that he can temper populist rhetoric with practical considerations.

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 or bank transfer. Bank transfers are by far the most widely-used means of payment. The SWIFT system is fully operable in the Czechia, and provides an easier, quicker and cheaper method for handling international payments. The Czechia 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), 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.

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

Fast-track procedure / Order to pay

Platební rozkaz is a practical and rather short procedure, outlined in sections 172-175 of the Code of Civil Procedure (ob?anský soudní ?ád, 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 July 1, 2009 (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 July 1, 2009).

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Enforcement of a Legal Decision

Judicial enforcement is reserved only for matters specifically listed in the law. Monetary claims stemming from business relationships are enforced by a judicial executor (soudní executor) under Act No. 120/2001 Coll. (exeku?ní ?ád, 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 EU, enforcement of foreign awards issued by an EU 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

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;

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 (insolven?ní rejst?ík) kept by the Ministry of Justice, where all important information on insolvency proceedings is published. This also allows for insolvency proceedings to remain transparent.

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

REORGANIZATION

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.

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BANKRUPTCY

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.

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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

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.

Last updated:December 2025