Czech economy contracted by 0.4 percent last year
Economic commentary by Jakub Seidler, Chief Economist of the CBA
The domestic economy grew by 0.2 % quarter-on-quarter in the final quarter of last year, according to the preliminary estimate published today by the CZSO, while it had contracted by 0.6 % in the previous quarter. In year-on-year terms, it moderated to 0.2 % (vs. -0.8% in the previous quarter), Chart 1. For the whole of last year, GDP fell by 0.4%. For this year, estimates are revised downwards for the time being and relatively subdued growth of around 1% is expected.
The preliminary estimate released today does not yet specify the details of the GDP development, the statistics office only said that quarter-on-quarter GDP growth was positively influenced by external demand and also household consumption. The manufacturing industry also prospered. In the year-on-year comparison, the negative effect of gross capital formation outweighed the growth in foreign demand.
The development of the domestic economy at the end of the year was slightly more favourable, as some earlier estimates had suggested that the economy would stagnate after having contracted by 0.6 % in the previous quarter. However, the domestic economy has failed to kick-start faster growth and is the only one in the EU that has not yet reached the pre-pandemic GDP level of the last quarter of 2019 (Chart 2), lagging behind by 1.4 % in 4Q23. This is due to several factors, the most important being a significant fall in household consumption, which is surprisingly strong compared to other EU countries and is attributable to a strong fall in real household incomes. However, other effects may also play a role, such as households' purchases abroad or the transition to the grey economy.
For the whole of last year, the domestic economy ended in a slight decline of 0.4 %, failing to meet expectations of a gradual recovery. Yet without the strong influence of the automotive sector, which dragged down the entire industry, the decline in the economy would have exceeded 1 %. At the same time, the estimates for this year do not sound very optimistic either and are generally revised downwards. The recently released finance ministry forecast expects the economy to grow by 1.2 % this year (up from 1.9 % in November), and there are a growing number of estimates in the market expecting growth below 1 %. This is mainly linked to weaker developments abroad, the automotive sector will no longer have the capacity to grow at such a fast pace this year, and uncertainty is again being brought about by increasing problems in supply chains. However, household consumption will also not recover as quickly as expected on the basis of the indicators so far. Households will continue to be weighed down by the cost-of-living increases of the past two years and the modest real wage growth projected for this year is unlikely to be sufficient to kick-start more dynamic consumption. The consolidation package will also work against growth, and overall growth in the domestic economy will remain relatively weak this year.
Today's numbers thus ended in line with analysts' expectations and slightly above the estimate of the latest finance ministry forecast (CNB's earlier estimate: +0.1 qoq/ -0.1% yoy), but the risks to this year remain elevated and from today's perspective it would be a success if economic growth exceeds 1% this year;
GDP growth of the domestic economy (%)
Source: CSO, CBA
Gross domestic product (%, 3q2023 vs. 4q2019)
Source: Eurostat, CBA
EU household consumption (%, 3q2023 vs. 4q2019)
Source: Eurostat, CBA