GDP in Czech Republic

Czech Republic - GDP

Growth remains healthy at the start of 2019

According to a detailed breakdown of GDP released by Czech Republic’s Statistical Institute on 31 May, the economy grew a seasonally-adjusted 2.6% year-on-year in the first quarter, a notch above the 2.5% growth rate shown in the preliminary release and matching Q4 2018’s increase. In quarter-on-quarter terms, however, growth moderated to 0.6% in Q1 from 0.8% in Q4 2018, which had marked the strongest expansion in two years.

Healthy domestic demand underpinned the first-quarter outturn. Private consumption rose a firm 2.7% on an annual basis (Q4 2018: +2.2% year-on-year) amid rapid wage growth, upbeat confidence among consumers and an extremely tight labor market. Notably, the unemployment rate dipped to a record low in the quarter and remains the lowest in the entire EU. In contrast, fixed investment lost considerable pace in Q1, with growth declining to a two-year low (Q1: +3.4% yoy; Q4 2018: 10.4% yoy). That said, it was still a relatively solid upturn, largely reflecting higher investment in dwellings and led mainly by the public sector. Similarly, government spending eased slightly (Q1: +3.4% yoy; Q4 2018: +3.6%).

On the external front, metrics improved somewhat but this was mainly due to a sharp deceleration in imports. Exports rose a modest 2.0% year-on-year—the softest pace since Q3 2013—amid subdued demand for electronic and optical products, and transport equipment (Q4 2018: +5.0% yoy). Likewise, growth of imports cooled to 2.1% year-on-year in Q1 from a robust 5.4% in the prior quarter. Taken together, the external sector’s contribution to growth was null, an improvement from Q4 2018 when it dragged slightly on the overall expansion.

Looking ahead, growth is expected to moderate slightly this year but should remain healthy overall. Particularly, consumer spending is set to propel growth ahead as households benefit from robust labor market conditions and firm wage gains. Meanwhile, fixed investment growth is seen easing after reaching its peak last year. Global trade conflicts and a sharper slowdown in demand from the EU cloud the outlook.

The Czech National Bank expects the economy to expand 2.5% in 2019 and 2.8% in 2020. FocusEconomics Consensus Forecast panelists see the economy expanding 2.6% in 2019, which is down 0.1 percentage points from last month’s projection. For 2020, the panel sees GDP increasing 2.5%.