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Czech Republic GDP Q2 2018

Czech Republic: Economy cools in Q2; nevertheless, growth remains robust

A detailed breakdown of GDP, released by the Statistical Institute on 31 August, revealed the economy lost momentum in the second quarter. The economy grew a seasonally-adjusted 2.4% year-on-year in Q2, matching the growth rate shown in the preliminary release and notably below the revised 4.1% increase logged in Q1 (previously reported: +4.4% year-on-year). Despite the deceleration, growth picked up slightly on a quarterly basis, indicating that economic activity remained robust. In quarter-on-quarter terms, the Czech economy accelerated from the revised 0.5% expansion in Q1 (previously reported: +0.4% quarter-on-quarter), growing 0.7% in the second quarter.

As in the first quarter, domestic demand was the engine of growth in Q2. Private consumption grew 3.5% in year-on-year terms, slowing from the revised 4.4% increase recorded in the first quarter (previously reported: +4.1% yoy). An overheated job market, brisk wage growth and historically-high consumer confidence underpinned household spending in Q2. Investment activity was again the main contributor to the expansion, growing a still-outstanding 7.8% year-on-year on the back of increased investment in buildings, machinery and transport equipment. The second-quarter print nevertheless was well below the revised 10.3% jump recorded in Q1 (previously reported: +10.5% yoy). Meanwhile, government consumption climbed a healthy 2.6% year-on-year, slightly below the revised 3.3% expansion in the previous quarter (previously reported: +3.6% yoy).

On the external front, exports rose 3.5% in Q2, largely driven by shipments of electronic products and machinery (revised Q1: +5.2 yoy; previously reported: 4.1% yoy). Meanwhile, imports advanced 4.4% year-on-year in Q2, below the revised 6.6% rate in Q1 (previously reported: +6.5% yoy). Taken together, the external sector subtracted 0.4 percentage points from overall growth, slightly below the 0.7 percentage point write-down recorded in Q1. The weak performance was unsurprising, however, given that strong domestic demand and import-intensive investments pushed up import demand while exports slowed on a stronger koruna, weaker external demand and limited capacity of producers.

Looking ahead, robust household consumption growth and buoyant capital spending are expected to continue powering economic activity in the second half of the year. As a small and open economy, however, the Czech Republic is susceptible to economic developments abroad, particularly in the EU, and escalating global trade tensions thus pose a sizeable downside risk to the outlook.

Czech Republic GDP Forecast

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