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The Final Countdown: Implications of a Hard Brexit on the Czech Republic

It seems that the whole of Europe has been holding its breath as the last chapters of the Brexit saga draw nearer. The UK has until March 29 to make a final decision, but the possibility of a hard Brexit has never felt more real. While the ripple effect of Brexit can be felt on a global scale, some countries are set to take a bigger hit than others – one of which is the Czech Republic.

In an interview, Czech Foreign Minister Tomáš Petříček painted a harrowing picture of what could become of the economy. “There are several possible scenarios. The most pessimistic options, of course, come from the ‘no-deal’ Brexit,” Petříček explains. “Estimates indicate a weakening of the Czech economy at a level between 0.5 and 1 percent of [the] GDP.”

At the moment, the United Kingdom ranks as one of the top trading partners for the Czech Republic. Not only is Britain the second highest exports market for the Czech auto industry, but the UK shares in Czech imports also reach a total of 2.3%. With this in mind, such a shift in key supply chains and bilateral trade could spell doom for Central European economies.

Although 0.5% to 1% does sound like a significant dip, analyst Tereza Hrtúsová believes that the risks aren’t as grave as they are perceived to be. Hrtúsová, who works for the country’s largest bank, Česká Spořitelna, predicts an unwelcome but insignificant cut in the country’s GDP. “According to our analysis, Brexit may cut Czech GDP by up to 55 billion – which is about 1.1 percent of GDP,” she revealed. “That could mean the loss of 40,000 Czech jobs. Most affected would be the automotive, electronics and engineering sectors.”

Fortunately, the Czech national bank’s GDP growth projection for the year lies at around 3.3%. This means a hard Brexit isn’t nearly enough to trigger the next recession or stifle the country’s economic growth to the point of stagnation. What’s cushioning the blow is the little value that exports actually hold in the Czech economy. Even for the most at-risk sectors like car manufacturing, its actual retained value clocks in at a meagre 43%.

Meanwhile, the government is channeling its focus on keeping EU relations intact. Since the wake of the Brexit referendum, FXCM have highlighted citizenship rights in the UK and EU as one of the key issues for resolution, on top of trade and currency concerns.

In response to this issue, a new law protecting the rights of British nationals residing in the Czech Republic was approved last January to pave the way for Brexit. The new law serves to ensure that British nationals would retain the same rights as EU citizens until the end of 2020, even in the event that the U.K. leaves the EU without a deal. This should provide them enough time to be able to sort out foreign worker’s visas and keep them from being summarily deported come March 29.

All in all, no matter the outcome, the Czech Republic looks to maintain a measured calm for UK nationals in the country, as well as businesses relying on UK trade. Minister Petříček has emphasised that he would like to maintain a mutual agreement between the UK and the Czech Republic to protect their citizens and for bilateral trade to proceed as normal. “Great Britain is leaving the European Union, it is not leaving Europe. It will continue to be our partner in the future,” he said in an interview on Czech Radio. “However the ball is now in Britain’s court and we are waiting to see what course of action the British prime minister will propose.”

Headed by Kafkadesk's chief-editor Jules Eisenchteter, our Prague office gathers over half a dozen reporters, editors and contributors, as well as our social media team. It covers everything Czech and Slovak-related, and oversees operations from our other Central European desks in Krakow and Budapest.