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Czech Republic GDP Q1 2018

Czech Republic: Economy loses steam in Q1, but growth remains robust

A detailed breakdown of GDP, released by the Statistical Institute on 1 June, revealed that the economy lost some steam in the first quarter of the year compared to the previous quarter. The economy grew a seasonally-adjusted 4.4% year-on-year in Q1, below the revised 5.5% increase logged in Q4 (previously reported: +5.2% year-on-year) and the 4.5% growth rate shown in the preliminary release. Despite the moderation, the pace of growth remained robust. In quarter-on-quarter terms, the Czech economy slowed from the revised 0.8% expansion in Q4 (previously reported: +0.5% quarter-on-quarter) to a 0.4% increase in Q1.

Domestic demand was the engine of growth in Q1. Private consumption grew 4.1% in year-on-year terms, slightly below the 4.3% increase recorded in the fourth quarter. An exceedingly tight labor market, solid wage gains and relatively subdued inflation boosted household real incomes, driving robust consumer spending in Q1. Fixed investment growth was the main contributor to the expansion, growing a stellar 10.5% year-on-year—the fastest rate since Q3 2015—on the back of increased investment in buildings and machinery. The first-quarter print came in above the revised 8.4% increase recorded in Q4 (previously reported: +7.9% yoy). Meanwhile, government consumption rose a strong 3.6% year-on-year, partly reflecting public sector wage hikes (revised Q4: +1.9% yoy; previously reported: +1.3% yoy).

On the external front, export growth of goods and services decelerated to 4.1% in Q1 from 7.6% in Q4, largely reflecting a sharp slowdown in merchandise exports. Meanwhile, imports grew 6.5% year-on-year in Q1, below the 8.3% rate recorded in Q4. The external sector’s weak performance was partially attributable to a slowdown in Eurozone demand, to which the Czech economy is greatly exposed. Notably, this was the first quarter in over four years in which the external sector did not contribute to GDP growth.

Looking ahead, solid household consumption growth is expected to continue fueling economic activity this year, buttressed by low unemployment and accelerating wages. Increased consumption demand should in turn prompt higher investment in the private sector. As a small and open economy, however, the Czech Republic is susceptible to economic developments abroad, particularly in the EU. Nevertheless, the external environment is expected to remain generally supportive going forward.

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