Economic growth accelerated to 0.3 percent in Q2
Economic commentary by Jakub Seidler, Chief Economist of the CBA
According to the preliminary estimate published today by the Czech Statistical Office, the domestic economy grew by 0.3% quarter-on-quarter (vs. 0.2% in 1Q24), year-on-year growth reached 0.4% (+0.3% in 4Q23). According to Reuters, the analyst consensus was expecting quarter-on-quarter growth of 0.4% (+0.5% yoy). The earlier spring CNB forecast was expecting growth of 0.7% (qoq and yoy), but after a significant revision to the GDP data in late June, the comparison with the CNB forecast is less telling. Thus, the preliminary figures on the development of the domestic economy were slightly disappointing. However, the difference of a tenth is insignificant for the first preliminary estimate; rather, it is less positive that the latest economic data suggest a slowdown in economic activity in the second half of the year. Thus, for the whole of this year, the domestic economy will grow only moderately, at around 1%, and growth estimates for this year are likely to be revised slightly downwards.
The preliminary estimate released today does not yet specify the details of GDP, with the statistics office merely stating that "Quarter-on-quarter GDP growth was influenced by rising domestic demand, mainly supported by higher final consumption expenditure. The 0.4% year-on-year growth in the economy was mainly supported by household final consumption expenditure. Government final consumption expenditure also rose, while external demand also had a positive impact. On the other hand, the change in inventories contributed negatively." Details will not be released until the end of August.
The CSO's comments thus suggest that the domestic economy contracted in 2Q2012. This is, after all, also confirmed by the monthly retail sales statistics, which have generally surprised with stronger dynamics this year. Household consumption will thus be the most significant contributor to economic growth this year, driven by renewed real wage growth and more favourable household sentiment, although there is also some correction here, as shown by the latest consumer confidence statistics in July.
The domestic economy is thus growing for the third quarter in a row, but the pace of growth is not very dazzling and at the same time the outlook for the future has started to weaken again in recent weeks in the context of weaker developments abroad. Although a major revision of the GDP data at the end of June showed that the domestic economy had already reached the pre-forecast level of the last quarter of 2019 earlier, in international comparison it still ranks among the three economies, along with Germany and Finland, that have not grown much so far since the level of late 2019 (Chart 2). In the case of the Czech Republic, the main cause is lagging household consumption, and while the revision of GDP data has seen a softening of the fall in consumption compared to the end of 2019, it is still very strong in international comparison (Chart 3).
Today's data will not be as crucial for the CNB's decision-making; for GDP, the individual components will be particularly important, especially household consumption, which is performing solidly, as the overall GDP figure is affected by a number of methodological/technical influences, such as recently wobbly inventories. Hence, we also believe that the CBN is more likely to opt for a quarter percentage point rate cut on quarters.
