Czech Republic: Economy gains traction in Q3
December 1, 2017
A detailed data release by the Statistical Institute on 1 December showed that the economy expanded markedly in the third quarter. GDP grew 5.0% year-on-year, a tad quicker than the previous quarter’s 4.7% growth rate. The result was driven mainly by strong domestic demand. In quarterly terms, the Czech economy slowed significantly from a 2.5% expansion in Q2 to a meager 0.5% increase in Q3.
The domestic economy performed strongly on the back of a surge in fixed investment and robust private consumption. Fixed investment growth, led by investment in dwellings and machinery equipment, came in at 7.5% in annual terms, slightly above the already impressive growth rate of 7.3% clocked in the second quarter. Growth in private consumption matched the previous quarter’s result and came in at 4.4% compared to the same period a year ago. The ongoing improvement in labor market conditions is likely driving private consumption growth; employment increased in the third quarter in annual and quarterly terms, and wages have risen. Government consumption growth, on the other hand, decelerated again, from 1.6% in Q2 to 1.1% in Q3.
The external sector added 0.5 percentage points to the annual growth rate in Q3. Although the external sector has added to growth throughout the year, the extent to which it has shrank for the second consecutive quarter (Q2: +1.3% yoy: Q1: +2.0% yoy). Nonetheless, exports grew 7.2% in Q3 on the back of solid exports in transport equipment. The pace at which imports grew was slightly lower (+7.1% yoy), demand from the automotive industry was, nonetheless, still strong.
The economy is expected to finish 2017 on a strong footing; a tightening labor market is likely to support private consumption moving forward. Next year, moreover, as shortages of workers spread, wages should rise accordingly. Strong external demand, is also expected to keep export growth afloat and contribute to the overall economy. However, strained relations with the EU following Andrej Babis’ election victory could drag on growth.
Author: Jan Lammersen, Economist