Economic growth accelerated slightly to 0.3% qoq in Q2, but fell slightly short of estimates
Economic commentary by Jakub Seidler, Chief Economist of the CBA
The domestic economy grew by 0.3% quarter-on-quarter in the second quarter of this year (vs. 0.2% in 1Q24), while year-on-year growth reached 0.4% (+0.3% in 4Q23), according to the preliminary estimate published today by the Czech Statistical Office. The Reuters analyst consensus expected quarter-on-quarter growth of 0.4% (+0.5% yoy). The earlier spring CNB forecast expected 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 growth, the statistics office said only 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. In contrast, 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 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 the latest consumer confidence statistics for July showed.
The domestic economy has thus been growing for the third quarter in a row, but the pace of growth has not been particularly dazzling, while the outlook for the future has begun to weaken again in recent weeks amid weaker developments abroad. Although a major revision to 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, 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. And for this reason, we thus believe that the CBN is more likely to opt for a quarter percentage point rate cut on Thursday.
