Czech Republic Domestic Demand (ann. var. %)

Domestic Demand in Czech Republic

Economy records sharpest contraction since Q1 2021 in Q1 2023

The economy contracted 0.4% on an annual basis in the first quarter, contrasting the fourth quarter’s 0.3% increase. Q1’s reading marked the worst result since Q1 2021.

The downturn was driven by weakening private consumption, fixed investment and exports. Private consumption contracted 6.4% in Q1, marking the steepest decline since Q4 2020 (Q4 2022: -5.5% yoy). Fixed investment growth fell to 0.3% in Q1, marking the worst result since Q2 2021 (Q4 2022: +4.6% yoy). Public spending, meanwhile, hit an over two-year high of 3.9% in the first quarter, up from the fourth quarter’s 0.9%.

On the external front, exports of goods and services growth waned to 9.5% in Q1 (Q4 2022: +9.7% yoy). In addition, imports of goods and services growth moderated to 3.3% in Q1 (Q4 2022: +7.6% yoy), marking the worst reading since Q2 2022.

On a seasonally adjusted quarter-on-quarter basis, GDP recorded a flat reading in Q1, following the previous quarter’s 0.4% decrease. Q1’s reading marked the best result since Q2 2022.

Activity will be subdued this year, as domestic demand will be buffeted by tight financing conditions, still-elevated inflation and depleted savings. Moreover, an EU-wide economic slowdown will weigh on exports. The disbursement of EU funds should sustain activity, however. Energy price swings and further spillover effects from the Ukraine war pose risks to the outlook.