Czech Republic: Economy remains mired in deep recession
June 4, 2013
In the first quarter, GDP declined a seasonally and calendar-adjusted 2.2% over the same period last year, according to revised data published by the Czech Statistics Office. The reading, which was revised down from the initial flash estimate (-1.9% year-on-year), followed the 1.6% drop registered in the final quarter of 2012 and marked the fifth consecutive period of declining economic activity. In addition, the quarterly contraction exceeded market expectations, which had the economy contracting a milder 1.4%.
The first quarter deterioration underlines that the Czech economy remains stuck in a deep recession, as both domestic demand and the external sector deteriorated compared to the previous quarter. Total consumption declined 0.5% in Q1, which, nonetheless, marked an improvement over the 3.4% drop tallied in Q4, as growth in government spending accelerated to a 1.1% expansion in Q1 (Q4 2012: +0.7% yoy), whereas household consumption declined 0.5% in the same period (Q4: -3.5% yoy). Meanwhile, total investment plummeted 8.8% in the first quarter, reflecting a quicker destocking of inventories and a 3.9% decline in gross fixed investment.
On the external front, the external sector's net contribution to overall economic growth swung from plus 0.1 percentage points in the fourth quarter to minus 0.2 percentage points in the first three-month period. In Q1, both exports and imports of goods and services contracted 2.1%, which contrasts the 2.4% increase and the 2.6% expansion recorded in Q4, respectively.
On a sequential basis, data paint an even bleaker picture for the Czech economy, as GDP dropped a seasonally adjusted 1.1% in Q1 - the sharpest fall in four years -, which represents the sixth consecutive period of contracting economic activity and the longest recession since records began in 1996.
The Czech National Bank expects economic activity to decline 0.5% this year and to rebound in 2014, expanding 1.8%. FocusEconomics Consensus Forecast panellists are more optimistic and expect economic growth to remain flat this year, which is down 0.2 percentage points over the previous month's projection. For 2014, the panel sees economic growth accelerating to 1.8%.
Author: Ricardo Aceves, Senior Economist