Czech Republic: Second release shows economy performed better than previously reported in Q4
According to a revised estimate, GDP fell 4.7% year-on-year in Q4 (previously reported: -5.0% yoy), moderating from the 4.9% contraction seen in the third quarter. Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, GDP expanded 0.6% in Q4 (previously reported: +0.3% s.a. qoq), following the previous quarter’s 7.1% jump. Taking the year as a whole, the economy shrank 5.6%, strongly contrasting 2019’s 2.2% expansion and marking the worst contraction since current records began in 1996.
Q4’s softer annual contraction reflected an improvement in the external sector, which more than offset worsening dynamics in the domestic economy. Exports of goods and services rose 4.7% in Q4, contrasting Q3’s 3.1% drop, amid a stronger international trading environment and easing Covid-19 restrictions abroad. In addition, imports of goods and services ticked up 0.2% in Q4 (Q3: -5.2% yoy). The external sector as a whole therefore added 3.7 percentage points to the headline reading in Q4, following the softer 1.4 percentage-point addition in the previous quarter.
On the domestic front, consumer spending fell a more pronounced 8.3% in Q4 compared to Q3’s 3.6% contraction, amid tighter containment measures and downbeat consumer sentiment. Moreover, fixed investment shrank a sharper 12.3% in Q4 following the previous quarter’s 10.3% fall, while public consumption growth accelerated and soared 4.9% (Q3: +0.1% yoy).
Commenting on the short-term outlook for the economy, Jakub Seidler, chief Czech Republic economist at ING, stated:
“The current negative Covid situation and third wave have led to tighter restrictions which will impact growth in 1Q21, but if a full lockdown (including industry) is avoided, net exports could help to limit the negative economic consequences of tighter restrictions – though industrial companies are also struggling with supply chains disruptions in 1Q, which are negatively impacting production, mainly in the automotive sector.”
Looking ahead, GDP is set to return 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.