News

Qoq growth slumped due to a worse external trade balance

The second reading of GDP growth confirmed a slowdown of the Czech economy in the third quarter. Qoq growth was even revised one tick lower to 0.2%. Yoy growth remained without change at 1.9%. A lower surplus in the external trade balance and weaker inventory built were behind the slowdown. Growth was also dampened by a drop in government expenditures. The main positive driver for GDP dynamics was private consumption, which increased 0.9% qoq in the third quarter. We also see a minor revival of investment activity even though it still remains muted.

The gross value added in industry dipped in the third quarter. Although other items on the supply side increased, their growth contributions were only enough to lift the dynamics to 0.1% qoq.    

From a yoy perspective, GDP increased 1.9%. Most of the growth is thanks to private consumption. In contrast, fixed capital formation is an impediment on progress. It was hit by low investment activity in the public sector. Last year, the 2007-2013 programming period ended and there was massive last-minute tapping of EU funds. Tapping at the beginning of the new programming period is always weak. This situation translates into a slump in investment. Other demand-side items contributed positively, but their growth contribution remains limited.

Despite its qoq decline, valued added in industry remains the key driver of growth on the supply side. The private service sector also contributed notably. Other items contributed negligibly. Moreover, the construction sector acted negatively as a result of a drop in investment activity.  

The economic advance should accelerate in the last quarter of this year. Domestic consumption will continue to be behind the growth. On the other hand, we expect no further significant contributions from external trade. It seems that the strong growth of demand for cars stemming from Western Europe has been easing. Moreover, the revival of investment will push for higher imports. We expect overall growth of the economy to print 2.5% this year. The upcoming (election) year should record an acceleration to 2.7% thanks to fiscal expansion and increased investment due to the gradual start of the next EU funds tapping cycle.