The Czech economy expanded on an annual basis for the third straight quarter in Q2 2014 supported mainly by recovering domestic demand and expanding manufacturing sector. The statistics office released on August 29 detailed second-quarter data showing the country’s gross domestic product growing by 2.7% y/y, slightly up from the initial estimate of 2.6%. The growth eased from 2.9% y/y in Q1.
The economy stagnated on a quarterly basis in Q2, in line with the initial estimate and following a 0.8% q/q hike in the first three months.
The Czech economy is reviving from a record-long recession that ended in 2013. Recovery was aided by the central bank’s interventions on the currency market to weaken the koruna to stave off the threat of deflation and help exporters by making their products more competitive abroad. However foreign demand, which has been the main growth driver in previous years, weakened in recent months in line with a slowdown in western Europe, and in particular in Germany, the Czech Republic’s main trading partner. The country is yet to feel the impact of the Ukraine crisis which will put a drag on growth in the short-term.
Final consumption expenditure increased by 2% y/y in Q2 driven by a 2.3% y/y rise in government spending and by a 1.9% hike in household demand. Gross capital formation was by 10.8% higher than a year ago. External trade stopped being the main factor of the GDP formation in Q2 as imports increased by 11.3% y/y, while exports advanced 8.9% y/y.
On the supply side, activity increased in all sectors except for financial and insurance activities. The key manufacturing sector, which accounted for a third of the gross value added, expanded by 8.7% y/y with production of transport equipment being the main growth driver.
According to the latest forecast of the Czech finance ministry, the GDP should grow by 2.7% in 2014, recovering from a 0.9% drop in 2013. The central bank sees this year’s growth at 2.9%. The IMF’s forecast is for a 2.5% GDP growth, while both the European Commission and the World Bank see it at 2%.
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