Czech Republic: Economy slows in the fourth quarter
March 11, 2011
In the fourth quarter, GDP expanded 2.6% compared to the same period the year before, according to revised estimates published on 11 March. The revised reading was below the 2.9% expansion initially reported in the February estimate, and was slightly under the 2.7% expansion tallied in the third quarter. In the full year 2010, the economy partly recovered from the 4.0% contraction tallied in 2009, growing 2.2%. The deceleration in the fourth quarter mainly reflected a deterioration in domestic demand, while the net contribution from the external sector improved. Private consumption contracted 0.4% year-on-year, contrasting a 0.7% expansion observed in the third quarter. Government consumption dropped 1.6%, well below the 0.3% contraction tallied in the previous quarter. Moreover, fixed investment stepped down from a 0.2% contraction in Q3 to a 2.3% drop in Q4. Meanwhile, both exports and imports continued to register strong growth. Exports of goods and services grew 16.8% in the fourth quarter, slightly faster than the 16.4% increase observed in the third quarter, whereas imports decelerated from a 19.2% expansion in the third quarter to a 17.3% increase in the final quarter of 2010. As a result, the net contribution from the external sector to overall growth improved from minus 2.5 percentage points in the third quarter to plus 0.2 percentage points in the fourth. At the sector level, the slowdown in the fourth quarter was mainly the result of a deeper contraction in agriculture, whereas industry and services improved compared to the previous quarter. A quarter-on-quarter comparison points to a stronger deceleration than suggested by the annual figures, as GDP grew 0.3% over the previous quarter in seasonally and working-day adjusted terms (Q3: +0.9% quarter-on-quarter). The Finance Ministry expects the economy to grow 2.2% this year, before accelerating to 2.7% next year. Meanwhile, the Central Bank sees the economy growing a more moderate 1.6% this year, owing to strong fiscal tightening measures adopted by the government. For 2012, the Bank expects economic growth to accelerate to 3.0%.
Author: Ricardo Aceves, Senior Economist