Czech Republic: GDP records largest drop on record in Q2 amid Covid-19 health crisis
September 1, 2020
GDP plunged a revised 11.0% year-on-year in Q2 (previously reported: -10.7% yoy), coming in well below the 1.9% contraction seen in the first quarter and marking the worst reading on record, as the full impact of the Covid-19 health crisis took its toll on activity. Similarly, on a seasonally-adjusted quarter-on-quarter basis, GDP declined 8.7% in Q2 (previously reported: -8.4% s.a. qoq), down from the previous quarter's 3.3% fall.
The annual downturn reflected notable contractions in both domestic and foreign demand. Household spending fell 7.6% in Q2, well below Q1's 0.2% contraction, as containment measures to halt the spread of the virus battered non-essential business activity and consumption. Meanwhile, fixed investment declined 4.8% in Q2, a softer decrease than the previous quarter’s 5.2% fall, while public consumption growth slowed to 1.8% (Q1: +4.9%).
On the external front, exports of goods and services fell 23.3% in Q2, markedly below Q1's 1.9% contraction, amid a weak international trading environment and disrupted supply chains. In addition, imports of goods and services dropped at a more pronounced pace of 18.2% in Q2 (Q1: -1.4%). The external sector as a whole therefore subtracted 5.6 percentage points from the headline reading in Q2, following the 0.5 percentage-point subtraction in the previous quarter.
Commenting on the outlook, Jakub Seidler, chief economist at ING Czech Republic, reflected:
“As revised figures did not change much from the preliminary estimates, we still expect the Czech economy to fall around 7% this year. However, the final figure will depend on the rate of the global recovery in the second half of the year, which remains more uncertain due to the Covid-19 situation. […] Although the worst is behind us in terms of falling GDP, many economic indicators might start to deteriorate with a delay, and especially after the end of government support programmes, notably the unemployment rate.”
Author: Hanna Andersson, Economist