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Czech Republic GDP Q3 2018

Czech Republic: Economic growth remains healthy in Q3

A detailed breakdown of GDP, released by the Statistical Institute on 30 November, revealed the economy maintained momentum in the third quarter. The economy grew a seasonally-adjusted 2.4% year-on-year in Q3, a notch above the 2.3% growth rate shown in the preliminary release and matching Q2’s annual expansion. In quarter-on-quarter terms, the Czech economy slowed slightly from the 0.7% expansion logged in Q2, growing 0.6% in the third quarter.

As in the second quarter, domestic demand was the engine of growth in Q3. Private consumption grew 3.1% in year-on-year terms, marginally below the revised 3.2% increase recorded in the second quarter (previously reported: +3.5% yoy). An extremely tight labor market, rapid wage growth—up 8.5% year-on-year in nominal terms in Q3—and elevated consumer confidence bolstered household spending in Q3. Investment activity was again the main driver of the expansion, growing a stellar 9.3% year-on-year on the back of increased investment in buildings, machinery and transport equipment, and above the revised 8.5% jump recorded in Q2 (previously reported: +7.8% yoy). Meanwhile, government consumption climbed a robust 5.3% year-on-year, well above the revised 2.9% expansion in the previous quarter (previously reported: +2.6% yoy) and the strongest rise in over a decade.

On the external front, exports rose 4.5% in Q3, largely driven by shipments of electronic products and electrical equipment (revised Q2: +3.7% yoy; previously reported: +3.5% yoy). Meanwhile, imports grew 6.2% year-on-year in Q3, largely reflecting strong domestic demand dynamics and the high import component of higher investment activity (revised Q2: +4.8% yoy; previously reported: +4.4% yoy). Taken together, the external sector subtracted 1.0 percentage points from overall growth, a greater drag than the 0.5 percentage point write-down recorded in Q2.

Going forward, buoyant household consumption and capital spending are expected to continue driving economic activity ahead. Given the Czech economy’s export-oriented industrial base, however, escalating global trade tensions and a potential slowdown in foreign demand represent sizeable downside risks to the outlook.

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