Czech Republic: Second release confirms contraction softened in Q1
A revised estimate confirmed that GDP fell 2.1% year-on-year in Q1 amid another wave of Covid-19 infections, which prompted the government to tighten restrictions. That said, the decline moderated from the 4.8% contraction seen in the fourth quarter of 2020. Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, GDP shrank 0.3% in Q1, contrasting the previous quarter’s 0.6% increase.
The first quarter’s annual contraction reflected a sizable decline in domestic demand, which more than offset a positive contribution from the external sector. On the domestic front, consumer spending fell a less pronounced but still-considerable 6.1% in Q1 compared to Q4 2020’s 8.3% contraction, amid downbeat consumer sentiment and as the services sector bore the brunt of tighter restrictions. Meanwhile, fixed investment shrank a much softer 3.6% in Q1 following the previous quarter’s 12.8% fall, while public consumption growth cooled notably to 1.3% (Q4 2020: +7.0% yoy).
Exports of goods and services rose 4.3% in Q1 following Q4 2020’s 4.7% increase, amid a stronger international trading environment and recovering manufacturing activity. In addition, imports of goods and services jumped 5.6% in Q1 (Q4 2020: +0.2% yoy). The external sector as a whole therefore subtracted 0.8 percentage points from the headline reading in Q1, contrasting Q4 2020’s 3.7 percentage-point contribution.
Economic growth is set to return this year, after GDP shrank markedly in 2020. Consumer and capital spending should rebound amid the gradual lifting of restrictions, sizable inflows of EU funding and supportive fiscal and monetary policies, while reviving external demand should fuel the crucial automotive industry. Uncertainty over the course of the pandemic clouds the outlook, however.