Czech gross domestic product (GDP) grew by 4.7% year-on-year in the second quarter, the Czech Statistical Office (CSU) announced on September 1, even faster than the 4.5% flash estimate that surprised analysts in mid August. Seasonally-adjusted 2Q GDP rose by 2.5% quarter-on-quarter, the fastest rate in the Czech Republic’s history, according to Komercni banka.

The strong result, up from 3.0% growth in Q1, is bound to put more pressure on the central bank to raise interest rates again sooner rather than later. The bank – which became the first central bank in the European Union to raise rates, on August 3 – had appeared unlikely to raise rates again this year. However, two bank board members have recently spoken out, indicating that another rate rise could happen as early as this month. The Czech benchmark rate is still only 0.25%, just above the European Central Bank’s 0.0%.

The central bank, which removed its cap on the strength of the Czech crown to the euro in April, has been concerned about raising rates too aggressively because of the potential impact on the currency, though such fears appear to have dissipated recently, given the relative stability of the exchange rate as crown speculators slowly unwind their positions.

GDP growth was derived from all components of demand, the CSU reported: household consumption contributed 1.5pp; net exports 2.1pp; and fixed investments 1.7pp.

Record growth took place both in household consumption, which grew by 4.4% y/y and 1.8% q/q, and investment, which soared by 7.7% y/y and 6.3% q/q. Exports grew by 7.3% y/y (imports by 6.2% y/y), while government expenditure rose by 1.9% y/y.

Household consumption, which had been relatively stable over recent quarters, rose to pre-financial crash levels on falling unemployment, rising wages and growing lending. Investment, which had been erratic over recent quarters, grew in all segments, being slightly offset by a decrease in inventories (-1pp to GDP).

Analysts at Komercni, who raised their 2017 forecast from 3.7% to 4.3% after the flash estimate, commented: “GDP growth will continue to show positive dynamics over the rest of the year, which will be, however, weaker than the first half of the year.”

J&T analysts highlighted that the central bank may now need to damp down demand. “Even if we apply a conservative outlook to the second half of the year, i.e. the dynamic growth from 1-2Q will not be repeated, full-year growth will probably exceed 4%,” says J&T. “The GDP results give a clear signal to the CNB [Czech central bank] that it should increase interest rates.”