The Czech economy gained strength posting its fourth straight quarterly rise in Q1 2014 supported by higher demand both abroad and at home, detailed data by the statistics office showed on June 4. Gross domestic product advanced by 0.4% on the quarter in Q1 following a 1.5% growth in the previous three months. According to the flash estimate announced two weeks ago, the GDP stayed unchanged.

On an annual basis, the Czech economic growth strengthened to 2.5% in January to March 2014, the fastest in three years. The statistical office initially estimated the first-quarter annual growth at 2%, following a 1.1% y/y expansion in Q4 2013. The low prior-year base also contributed significantly to the Q1 growth.

Final consumption expenditure increased by 1.4% y/y in Q1 driven by a 1.4% y/y rise in government spending and by a 1.5% hike in household demand. Gross capital formation was by 2.5% higher than a year ago as a drop in inventories was offset by a 5.2% growth in investments mainly in transport and machinery equipment as well as in construction. Foreign trade also contributed significantly to the Q1 growth. The positive balance of trade in goods and services increased by 46.6% from last year, data showed.

On the supply side, activity increased in all sectors except for financial and insurance activities. The key manufacturing sector expanded by 4.6% y/y with production of transport equipment contributing the most to the overall growth. The construction sector posted a 2.6% y/y rise thanks to favourable weather conditions.

IntelliNews comment: The export-driven economy is reviving from a record-long recession that ended in 2013. Recovery is aided by rising demand for Czech products abroad, mainly in the euro zone, the Czech Republic’s main trading partner. Improving domestic demand is also supporting growth in 2014. Rising real wages and improving labour market prospects will help household consumption continue its positive contribution to the GDP after several years of stagnation and contraction. Private investments are to rebound on the back of improving business confidence and rising demand for loans. The upturn in public investment should be supported by increased spending of the new government and a surge in EU-funded investment projects.

According to the latest forecast of the Czech finance ministry, the GDP should grow by 1.7% in 2014, recovering from a 0.9% drop in 2013. The estimate is lower than expectations of both the European Commission and the IMF that see a growth of 2% and 1.9%, respectively.