The Czech Republic is a stable and prosperous market economy closely integrated with the EU, especially since the country's EU accession in 2004.
While the conservative, inward-looking Czech financial system has remained relatively healthy, the small, open, export-driven Czech economy remains sensitive to changes in the economic performance of its main export markets, especially Germany.
When Western Europe and Germany fell into recession in late 2008, demand for Czech goods plunged, leading to double digit drops in industrial production and exports. As a result, real GDP fell 4.7% in 2009, with most of the decline occurring during the first quarter.
Real GDP, however, slowly recovered with positive quarter-on-quarter growth starting in the second half of 2009 and continuing throughout 2011.
In 2012, however, the economy fell into a recession due to a slump in external demand. The auto industry remains the largest single industry, and, together with its upstream suppliers, accounts for nearly 24% of Czech manufacturing.
The Czech Republic produced more than a million cars for the first time in 2010, over 80% of which were exported. Foreign and domestic businesses alike voice concerns about corruption especially in public procurement.
Other long term challenges include dealing with a rapidly aging population, funding an unsustainable pension and health care system, and diversifying away from manufacturing and toward a more high-tech, services-based, knowledge economy.