Czech Republic: Growth eases to three-year low in Q4 2019 on weak external demand
The economy grew a seasonally-adjusted 1.8% year-on-year in the final quarter of last year, according to a detailed GDP breakdown released by Czech Republic’s Statistical Institute on 3 March. The fourth-quarter print came in slightly above the preliminary estimate of a 1.7% increase, but it was down from Q3’s 2.4% upturn and marked the softest expansion since Q4 2016. In quarter-on-quarter seasonally-adjusted terms, growth also eased to a revised 0.3% in Q4 (previously reported: +0.2% quarter-on-quarter seasonally-adjusted) from 0.4% in Q3. For 2019 as a whole, GDP growth moderated to 2.4% from 2.8% in 2018.
A weak external sector drove the overall deceleration. Exports of goods and services declined 1.6% on an annual basis on lower shipments of electronic and optical products, as well as of machinery and equipment. This marked the first drop in nearly seven years and contrasted the 1.9% increase in the third quarter. Meanwhile, import growth quickened to 1.4% year-on-year (Q3: +1.1% year-on-year) amid robust demand dynamics at home. Taken together, the external sector subtracted a heavy 2.4 percentage points to growth, contrasting the 0.7 percentage-point contribution in the prior quarter.
On the domestic front, private consumption remained the engine of growth, rising a robust 3.2% year-on-year in Q4 (Q3: +2.7% yoy) on the back of an extremely tight labor market and upbeat wage gains. Capital spending also fared strongly, up 3.6% on an annual basis (Q3: +0.6% yoy) amid increased investments in construction and machinery equipment. Public spending, however, ebbed in the quarter (Q4: +2.2% yoy; Q3: +3.8% yoy).
The economy is expected to lose further traction this year. That said, growth should remain healthy, propped up by still-solid consumer spending, while continued absorption of EU structural funds is also set to support investment activity. An uncertain global trade backdrop and the subdued German industrial sector are key external headwinds that weigh on the outlook.