Czech Republic: Economy gains some steam in Q4 on the back of a stronger external sector
March 3, 2017
The Czech economy gained some steam in the final quarter of 2016, following a disappointing Q3. Growth in Q4 was supported by strong private consumption and a more favorable external sector. A sharp fall in fixed investment, however, still weighed on the economy. GDP growth strengthened from Q3’s 1.8% to 1.9% in Q4. Q4’s result overshot market expectations of 1.8% growth and brought full-year 2016 GDP growth to 2.3%, half the 4.6% rate seen in 2015, when the country benefited from an unusually high level of public investment associated with the end of the EU funding cycle.
Growth in the Czech Republic continues to be supported by robust private consumption, which contributed 1.4 percentage points to growth. This, together with the positive contribution from the external sector, offset a sharp deterioration in fixed investment. The enduring expansion in private consumption—which grew 2.9% in Q4, marginally down from Q3’s 3.1% increase—has been supported by rising wages, a strong labor market and still low inflation. On the downside, the impact on investment of the diminished absorption of aid from the European Structural and Investment Fund continued to bite and drove fixed investment to fall 6.1% in Q4, worsening from the already considerable 5.0% drop recorded in the previous quarter. Moreover, government consumption flattened in Q4 after the 1.0% growth recorded in Q3.
Meanwhile, the external sector added 0.9 percentage points to growth. Imports of goods and services decelerated from a 1.7% increase in Q3 to a 0.5% rise in Q4, reflecting weaker demand of foreign goods for domestic investment. Export growth also moderated, but to a lesser extent, decelerating from Q3’s 2.4% to Q4’s 1.9%.