Czech third-quarter growth the strongest in eight years

By bne IntelliNews January 12, 2016

The Czech economy expanded 4.7% y/y in the third quarter of 2015, driven by strong domestic demand, the statistics office reported on January 12.

The data release saw the reading revised upwards from an earlier estimate of 4.5%. The reading follows a 4.6% expansion in the second quarter and reflects the strongest annual growth since the final quarter of 2007.

On a quarterly basis, GDP expanded 0.7% in July-September, which was also revised higher from the previous estimate of 0.5%. The result follows a 1% hike in the second quarter. "The Czech Republic stayed the top regional achiever again in the third quarter of last year," note analysts at Komercni banka.

On the demand side, growth was mainly supported by strong investment, which contributed 2.1pp to overall growth as it expanded 10.1%. Private investment reflected improving demand from abroad. However, public investment led the push thanks to EU-funded projects. The government has been rushing to tap the remaining funds under the 2007-2013 programming period.

Household consumption continued to help drive the economy, adding 1.4pp to overall growth, on top of a 0.9pp boost from government consumption. "Real disposable income is increasing," KB points out. "This, together with [a] decreasing savings rate, means households’ elevated expenditures."

However, net exports contributed negatively, subtracting -0.1pp from the overall GDP expansion.

The Czech economy has enjoyed accelerating growth over the past two years and the latest figures suggest the country closed 2015 with the strongest GDP growth in eight years. The IMF and the World Bank pitch last year’s growth at 3.9%-4.3%. Looking ahead, however, growth is likely to ease this year as investment weakens on the back of lowered EU funds.

"We expect the growth of the Czech economy to continue," the KB analysts write. "For the full 2015, we forecast the economy to increase by 4.4%. Next year, the expansion is set to slow down as one-off factors that were driving the 2015 performance (low oil prices, EU funds) will mute. Still, we look for a growth by a solid 2.8% in 2016."



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