The Czech economy grew at the fastest rate in more than six years posting a third straight quarterly rise in Q4 2013 confirming expectations that it is on track to recovery after exiting a record-long recession in mid-2013. The statistics office said on March 6, the gross domestic product expanded by 1.9% on the quarter in Q4, faster than the flash estimate of 1.6% announced in February.

Moreover, on an annual basis the GDP grew by 1.3% in Q4, above the flash estimate of 0.8%. The annual growth in Q4 was the first one since Q4 2011.

In full-2013 the economy shrank by 0.9%, slightly better than the 1.1% preliminary drop.  The GDP drop in 2013 was influenced mainly by lower investments in fixed assets, while household demand and foreign trade mostly stagnated last year. Government expenditure had a slight positive impact on the GDP.

The value of the GDP calculated at current prices stood at CZK 3.881tn (EUR 142bn) in 2013, up 0.9% from 2012.

Final consumption expenditure edged up by 0.4% y/y in 2013, improving from a 2.1% decline the previous year. The growth was driven by a 1.9% y/y rise in government expenditure, while household demand continued retreating – by 0.2%, albeit easing from a 2.1% y/y decline in 2012. Gross capital formation was by 4% lower than in 2012 with investments in fixed assets falling by 3.3% mainly due to a decline in construction investments. Regarding foreign trade, both exports and imports of goods increased at nearly the same annual pace in 2013 (+0.9% and +0.8%, respectively).

On the supply side, activity increased only in financial and insurance activities, while the key manufacturing sector had a rather neutral impact as the growth in the last quarter of the year was just enough to compensate for the negative development of the sector in Q1 and Q2. Additionally, construction, agriculture, trade and some of activities of services have not reached the level of the previous year.

The gradual recovery of the Czech economy in the second half of 2013 was supported by the central bank’s move into the forex market to weaken the koruna to further ease monetary conditions and ward off deflation threat. The interventions helped boost consumer demand as shoppers rushed to buy goods at the end of the year before prices go up.

The new centre-left government, which came to power on Jan 29 following the October early elections, has said it will pursue looser fiscal policies and boost welfare and infrastructure spending to spur growth. The government targets a 1.4% GDP growth for 2014, slightly below the EC’s and World Bank’s forecasts of 1.8%. The IMF sees a 1.5% growth for 2014.