Czech Republic: Economy records sharpest contraction since Q1 2021 in Q3
GDP dropped at a sharper rate of 0.7% year on year in the third quarter from the 0.4% contraction tallied in the second quarter. Q3’s reading marked the worst reading since Q1 2021. On a seasonally adjusted quarter-on-quarter basis, GDP declined 0.5% in Q3, contrasting the previous quarter’s 0.1% growth. Q3’s reading marked the largest drop since Q1 2021.
Household spending recorded the smallest drop in over a year, decreasing 2.3% in the third quarter (Q2: -4.0% yoy). Public spending, meanwhile, improved to a 3.9% expansion in Q3 (Q2: +3.6% yoy). Fixed investment growth slowed to 3.3% in Q3 from 3.5% in the prior quarter. On the external front, exports of goods and services contracted 0.5% in Q3, marking the worst result since Q4 2021 (Q2: +5.0% yoy). In addition, imports of goods and services deteriorated, contracting 1.8% in Q3 (Q2: +2.1% yoy), marking the worst reading since Q4 2020.
Activity should improve in Q4, although data for the quarter is relatively weak so far. Economic sentiment improved from Q3’s average in October-November but remained significantly downbeat. Moreover, in the same period, the manufacturing PMI remained deeply entrenched in contractionary terrain despite gaining some ground from September. Looking further ahead, the economy will return to growth in 2024. Falling interest rates and inflation will trigger a rebound in private spending and an acceleration in investment activity. Additionally, the industrial sector should bounce back. The timely allocation of EU funds and the performance of the EU economy are factors to watch.