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Czech Republic GDP Q4 2020

Czech Republic: GDP growth moderates in Q3

GDP growth moderated to 1.7% year on year in the third quarter, down from 3.6% in the second quarter, but above the preliminary estimate of a 1.6% increase. A sharp downturn in domestic demand was behind the deceleration.

Household spending tanked 5.9% in the third quarter, which contrasted the second quarter’s 0.2% expansion, as consumers were hit by soaring inflation, tighter financing conditions and plunging sentiment. Moreover, fixed investment growth slowed to 4.6% in Q3, from 6.7% in the previous quarter, also weighed down by the economic impact of the war in Ukraine and heightened global economic uncertainty. Additionally, public spending fell 1.2% in Q3 (Q2: +1.8% yoy).

On the external front, exports of goods and services increased 10.5% in the third quarter, which was above the second quarter’s 1.6% expansion, underpinned by rising foreign sales of electrical equipment and motor vehicles. Meanwhile, imports of goods and services growth rose to 6.2% in Q3 (Q2: +1.8% yoy).

On a seasonally-adjusted quarter-on-quarter basis, the economy contracted 0.2% in Q3, swinging from the previous quarter’s 0.4% growth but above the preliminary release of a 0.4% drop.

Available data points to a further loss of momentum in Q4, as in October and November the manufacturing PMI remained entrenched in contractionary terrain, while both businesses and consumers grew more pessimistic on average. On top of this, higher interest rates and a cooling housing market spell trouble for activity. As for next year, the economy should expand at a subdued rate, as domestic demand is hit by still-elevated inflation and high financing costs, while the external sector suffers the impact of a Europe-wide economic slowdown. Some support to growth will be provided by EU Next Generation funds, however. Volatile energy prices due to the war in Ukraine represent a downside risk.

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