The Czech economy exited recession in the second quarter of 2013 but the pace of expansion was slightly weaker than previously estimated, data from the statistics office showed on September 3. The gross domestic product grew by 0.6% on the quarter in Q2, mainly on the back of rising demand from abroad, the stats office said revising down the figure from a 0.7% growth announced in a flash estimate in mid-August. The GDP contracted on a quarterly basis for six straight quarters till Q1, when it shrank by 1.3%.

In annual terms, the GDP fell by 1.3% in Q2, deeper than the initial estimate of a 1.2% drop and following a 2.4% decrease in the first quarter of 2013. Thus in the first half of 2013 the GDP shrank by 1.9% y/y.

Unusually cold and long winter in Central Europe had a negative influence on economic activities, especially in the construction sector, the statistical office said.

On the demand side, final consumption expenditure edged up by 0.8% y/y in Q2 mainly due to the low basis of the previous year but contracted by 0.5% from Q1. Household expenditure increased by 0.5% as demand for durables, especially household furnishing and transport equipment, increased. Gross formation decreased by 12.6% y/y with fixed capital formation down by 6.2% y/y and 1.5% q/q as all main types of investments contributed to the decrease. The GDP was positively influenced by foreign demand with exports rising by 2% y/y much faster than imports’ increase of 0.5% y/y.

On the supply side, the gross value added dropped by 1.2% y/y in Q2 pushed down by a 1.3% fall in manufacturing, a 3.7% decrease in construction, a 1.4% decrease in wholesale and retail trade and a 1.5% drop in real estate activities. In a positive note, financial and insurance activities grew by nearly 20%.  

IntelliNews comment: The Czech economy is suffering from weak domestic demand as the former centre-right government introduced a number of austerity measures, including spending cuts and tax rises, as it was seeking to trim the budget gap to below the EU's ceiling of 3% of GDP. The eurozone’s debt crisis was also curbing demand from abroad but the latest data showed exports gaining strength. We expect the Czech economic to continue recovering in the last two quarters of 2013 supported mainly by foreign trade but at best scenario in will report a slight decline in full-2013.

Measures to support the economic recovery have been delayed as the centre-right government of Petr Necas collapsed in June amid a bribery and spying scandal. The political standoff deepened further after the cabinet of leftist economist Jiri Rusnok, appointed by the president to replace Necas, resigned in August after losing a vote of confidence in parliament. In a bid to put an end to the political crisis, the lower house of the parliament voted to dissolve itself, a necessary step towards early elections, to be held on October 25-26. The main centre-left party Social Democrats (CSSD), tipped to win the early ballot as it holds a double-digit poll lead, has pledged to increase taxes for highest wage earners and big companies to bolster state coffers and increase public investments and create new jobs to ensure that the economy does not slip back into recession.