Czech economy teeters on edge of another recession

Czech economy teeters on edge of another recession
/ bne IntelliNews
By Albin Sybera November 1, 2023

The Czech economy is teetering on the edge of another recession after gross domestic product (GDP) decreased in the third quarter by 0.3% quarter-on-quarter and by 0.6% year-on-year. The Q3 figures follow a stagnant performance q/q and a 0.6% decline y/y in the second quarter.

In Q3 Czechia registered the third steepest q-o-q GDP drop in the EU, according to the Eurostat, behind Austria and Ireland. The economy is the only one in the EU that has not yet regained its pre-pandemic level.

Preliminary q-o-q figures released by the Czech Statistical Office (CZSO) were negatively affected by foreign demand, while domestic demand was stagnating, statisticians highlighted.

“The y-o-y decrease of the GDP was negatively influenced by lower final consumption expenditure of households and by lower gross capital formation. External demand had a positive influence,” Director of the National Account Department at CZSO Vladimir Kermiet commented.

Analysts surveyed by the Czech Press Agency (CTK) agreed that the combination of dampened household consumption and weakened foreign demand prevented the Czech economy from returning to growth this year.

“While the industrial cooling was rather expected given the weak foreign demand, hopes of reviving the domestic consumption were unfulfilled, and there was nothing to move the Czech GDP forward,” Vit Hradil, head analyst at consulting company Cyrrus, told CTK.

Head economist of the Czech Banking Association Jakub Seidler pointed out that the “domestic economy remains on the edge of recession and as the only one in the EU, it has not yet reached the pre-pandemic level of GDP from the end of 2019".

From the reasons driving this development, Seidler singled out the drop in household consumption, which  “in comparison to other EU countries is surprisingly strong".

Seidler also remained wary about the growth prospects of the Czech economy for next year, pointing to the austerity package passed by the parliament last month, which will have an “anti-growth” impact. 

The domestic currency, koruna, weakened by some 5 hellers down to 24.60 for 1€, following the CZSO releasing the figures.

In its market comment, J&T stated that the figures “support arguments for gradual interest rate cuts" but that “we continue to expect that the [CNB] bank board will leave interest rates unchanged in November”. adding that the cut in the 7% rate policy will come only at latter meetings.