Czech Republic: Economy slows in Q3 on the back of a weaker external sector
December 2, 2016
According to more detailed data released by the Czech Statistical Office on 2 December, the Czech Republic’s economy lost steam in the third quarter of 2016, slowing from a 2.6% annual increase in Q2 to a 1.9% expansion. The reading was the lowest in almost three years due both to a slower expansion in government consumption and to the weakening of the external sector. The impact on investment of the diminished absorption of aid from the European Structural and Investment Fund is still tangible, but the decline in fixed investment was nevertheless softer than in the previous quarter. On a positive note, private consumption gained strength, benefiting from improved consumer confidence.
Domestic demand accelerated to a 1.3% expansion in Q3 from the slight 0.2% growth recorded in Q2, supported by a reduced decline in total investment as well as by a stronger expansion in private consumption. Private consumption growth accelerated to a 2.8% increase in Q3 (Q2: +2.5% year-on-year) and growth in government spending declined to 1.5% (Q2: +3.1% yoy), which marked the steepest contraction in five quarters. Total investment growth suffered from a high base of comparison in Q3 2015, but nevertheless declined at a slower pace. Overall, total investment decreased 1.1% in Q3, up from Q2’s 3.5% drop. Fixed investment improved from a 3.4% fall in Q2 to a 2.3% drop in Q3.
Czech exports expanded at a slower pace, decelerating more than imports. Exports lost momentum in Q3, growing at the slowest rate in three years (Q2: +5.2% yoy; Q3: +2.0% yoy). Import growth decelerated at a softer pace, from 3.3% to 1.4% growth in Q3. As a result, the external sector’s contribution to overall GDP growth declined from 1.7 percentage points in Q2 to a two- and-a-half-year low of 0.5 percentage points in Q3.