Czech Republic: Second release confirms milder contraction in Q3 on easing restrictions
According to a revised estimate, GDP fell 5.0% year-on-year in Q3 (previously reported: -5.8% yoy), coming in well above the 10.7% contraction seen in the second quarter—which had marked the worst reading on record. Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, GDP jumped 6.9% in Q3 (previously reported: +6.2% s.a. qoq), contrasting the previous quarter’s 8.5% collapse.
The softer annual contraction reflected improving household spending and international trade. Consumer spending fell a less pronounced 3.9% in Q3 compared to Q2’s 8.3% contraction, thanks to easing containment measures and recovering consumer sentiment. However, fixed investment shrank a sharper 10.7% in Q3 following the previous quarter’s 5.1% fall, while public consumption growth slowed to 0.1% (Q2: +1.7%).
On the external front, exports of goods and services fell 3.1% in Q1, improving markedly from Q2’s 23.4% plunge, amid a stronger international trading environment and easing restrictions abroad. In addition, imports of goods and services dropped at a less pronounced pace of 5.1% in Q3 (Q2: -18.2%). The external sector as a whole therefore added 0.4 percentage points to the headline reading in Q3, sharply contrasting the 8.0 percentage-point subtraction in the previous quarter.
Commenting on the outlook, Jakub Seidler, chief economist at ING Czech Republic, reflected:
“However, these favourable growth numbers aren’t as significant anymore given the second wave of the pandemic and subsequent lockdowns. In fact, we expect the economy to shrink again in the last quarter of the year.
For 2020, we expect the domestic economy to fall by almost 7% after today’s favourable figures, but the pandemic is likely to hit the first half of next year hard again, however, in the last few weeks, the prospects for next year have significantly improved due to vaccine news.”
GDP is set to contract sharply this year, before returning to growth in 2021. Recovering demand from major European trading partners should underpin the external sector, while growing consumer and capital spending amid supportive fiscal and monetary measures should fuel domestic demand. However, the uncertain evolution of the pandemic clouds the outlook.