Czech Republic: Economy jumps in Q1 on the back of resilient household spending and a vibrant external sector
June 2, 2017
The Czech economy gained considerable steam in the first quarter of 2017, following a not-so-brilliant Q4. Growth in Q1 came on the back of robust private consumption and a strongly supportive external sector. Moreover, the previous quarter’s sharp fall in fixed investment gave way to a strong turnaround on the back of higher EU fund absorption. GDP growth strengthened from 1.9% year-on-year (yoy) in Q4 to 2.9% in the first quarter of this year. On a quarter-on-quarter base, the economy grew 1.3% in Q1, more than triple Q4’s 0.4% expansion.
The Czech economy continues to be supported by robust private consumption, which contributed 1.0 percentage point to growth in Q1. The enduring expansion in private consumption—which grew 2.8% in Q1, marginally down from Q4’s 2.9% increase—has been supported by rising wages and a buoyant labor market. Moreover, investment contracted a milder 0.6% in Q1 after plummeting 6.9% in Q4 due to the lower absorption of aid from the European Structural and Investment Fund. Moreover, government consumption accelerated considerably in Q1, expanding 2.4% after the 0.2% growth recorded in Q4.
Meanwhile, the external sector added 1.7 percentage points to growth. Imports of goods and services accelerated from a 0.5% increase in Q4 to a 3.9% rise in Q1, reflecting stronger demand for investment goods, particularly car parts. Export growth jumped from Q4’s 1.8% to 5.4% in the first quarter of this year, benefiting from a firm recovery in the automotive industry.
The economy is forecast to accelerate this year as a tight labor market prompts further wage growth, underpinning household spending, and stronger external demand supports exports. Nevertheless, a slower-than-expected implementation of EU-financed investment projects could restrain the scope of the expansion.