Czech Republic Merchandise Trade Balance (EUR bn)

The economy shrank in quarter-on-quarter terms in Q4 2022. A significant contraction in private consumption amid high inflation, downbeat sentiment and tighter financing conditions was the main driver of this. Momentum appears to have remained subdued in early 2023. Business and consumer sentiment were both downbeat in January and February, while the manufacturing PMI remained entrenched in contractionary territory during the same period, weighed down by declining new orders and output. On top of this, inflation accelerated further in January, likely hitting consumer spending. In politics, in mid-February the government decided to weaken the indexation of old-age pensions due to a widening fiscal deficit. This measure will have to be ratified by Parliament, where a major battle is expected.