Czech Republic: GDP falls at sharpest pace in over a decade in Q1 on partial Covid-19 blow
June 2, 2020
The economy contracted 2.0% on an annual basis in the first quarter (Q4 2019: +2.0% year-on-year) as the Covid-19 containment measures started to take their toll. Q1's reading came in slightly above the 2.2% contraction of the preliminary release and marked the sharpest downturn since Q4 2009.
Fixed investment plunged 5.5% in Q1, contrasting the 4.6% increase logged in the previous quarter. Private consumption stagnated in Q1 due to the lockdown measures which came into effect only in mid-March, marking the worst result since Q1 2013 (Q4 2019: +3.2% yoy). Meanwhile, government spending picked up noticeably, surging 7.1% (Q4 2019: +1.7% yoy)—the sharpest increase since Q4 2003.
Exports of goods and services contracted 2.4% in Q1, marking the worst reading since Q1 2013 (Q4 2019: -1.5% yoy) as foreign demand was dashed by Covid-19. Similarly, imports of goods and services fell 2.1% in Q4 (Q4 2019: +1.4% yoy). Taken together, the external sector subtracted a 0.4 percentage points from the headline reading, following the heavy 2.4 percentage-point deduction in the prior quarter.
On a seasonally-adjusted quarter-on-quarter basis, economic activity dropped 3.3% in Q1 (Q4 2019: +0.5% s.a. qoq)—marking the worst reading since Q1 2009.
Commenting on the first-quarter reading and what to expect for the second quarter, Jakub Seidler, chief economist at ING Czech Republic, noted:
“The economic downturn in March alone was over 10%, and in the last weeks of March it was around 25%. Given that April was almost entirely affected by restrictions and May also returned to normal relatively slowly, it is clear that the decline in the domestic economy in 2Q will be in the double digits”.
Author: Javier Colato, Economist