Czech Republic: Economic growth quickens in the final quarter of 2018
March 1, 2019
A detailed breakdown of GDP released by the Statistical Institute on 1 March revealed the economy ended 2018 on a solid note, performing better than expected by market analysts. The economy grew a seasonally-adjusted 2.8% year-on-year in Q4, a notch below the 2.9% growth rate shown in the preliminary release but above Q3’s 2.5% expansion. In quarter-on-quarter terms, growth accelerated to 0.9% in Q4 (Q3: +0.7% quarter-on-quarter), the fastest pace in a year and a half. For the year, GDP rose 3.0% in 2018, well below the 4.5% expansion logged in 2017.
Upbeat domestic demand propelled growth overall in Q4. Investment activity was again the chief driver of the expansion, growing an outstanding 10.1% year-on-year on the back of increased investment in construction and machinery equipment (Q3: +11.0% yoy). Meanwhile, private consumption climbed 2.2% in year-on-year terms, below the 2.8% increase recorded in the Q3. Despite the moderation, however, household spending remained solid, propped up by an extremely tight labor market, robust wage growth and elevated consumer confidence. Government consumption growth also moderated in Q4, coming in at 4.7% year-on-year after reaching an over decade-high of 5.3% in the previous quarter.
On the external front, exports rose a strong 5.0% in Q4 despite the recent slowdown in the Eurozone, driven largely by shipments of electronics and transport equipment (Q3: +4.2% yoy). Meanwhile, imports grew 5.7% year-on-year in Q3, reflecting solid domestic demand activity (Q3: +6.3% yoy). Taken together, the external sector subtracted only 0.2 percentage points from overall growth, well below the 1.3 percentage point write-down recorded in Q3.
Going forward, domestic demand is expected to remain in the driver’s seat this year. Private consumption will spearhead the expansion as household incomes continue to be propped up by firm wage growth and the tight labor market. Given the Czech economy’s export-oriented industrial base, however, escalating global trade tensions and weaker foreign demand pose downside risks to the outlook.
Czech Republic GDP Forecast
The Czech National Bank expects the economy to expand 2.9% in 2019 and 3.0% in 2020. FocusEconomics Consensus Forecast panelists see the economy expanding 2.7% in 2019, which is down 0.2 percentage points from last month’s projection. For 2020, the panel sees GDP increasing 2.6%.
Author: Javier Colato, Economist