Czech GDP grows 0.1% q/q in Q1, moving country out of recession

Czech GDP grows 0.1% q/q in Q1, moving country out of recession
Some analysts believe the central bank could surprise with a rate rise on May 3. / bne IntelliNews
By Albin Sybera May 3, 2023

Czech gross domestic product (GDP) increased by 0.1% quarter-on-quarter in the first quarter of this year, according to preliminary figures released by the Czech Statistical Office on May 2, ending the country’s technical recession experienced in the second half of 2022.

CZSO’s data surpassed expectations – the latest prognosis of the Czech Ministry of Finance was a contraction of 0.2%.

The Confederation of Industry of the Czech Republic (SP CR) warned that the “economy is not in a strong condition” even though it has “probably avoided the continuation of a technical recession”. The SP’s Director of Economic Policy, Bohuslav Cizek, stated for the Czech Press Agency (CTK) that “catastrophic scenarios did not happen”, but that stagnation is expected for the rest of this year.  It forecasts GDP growth of 0.1% and with any real economic revival coming only in 2024, with 3.4% GDP growth.

In 2023 “companies are coping with earlier obstacles ranging from high y-o-y inflation growth linked to inflation expectations, expensive energy prices compared to global competition, to lack of workers and cooling of the demand,” SP’s Cizek commented in a statement for CTK.    

GDP decreased by 0.2% compared to Q1 of 2022. Employment increased by 0.4% q-o-q and by 1.4% in comparison to Q1 2022.  

Both developments “were positively influenced mainly by an increasing external demand,” while “a negative influence came from further decreasing final consumption expenditure of households,” CZSO’s Director of National Accounts Department Vladimir Kermiet commented.

Kermiet added that “gross capital formation decreased after a two-year period of growth.” The y-o-y growth of the gross value added was mainly driven by industry, while in q-o-q terms, trade, transportation, and accommodation and food services also contributed.

Analysts surveyed by the public broadcaster Czech Television (CT) welcomed the developments. The economy is “surprisingly robust” and companies “capable of effective improvisation” at times of crisis”, Petr Dufek, Head Economist at Banka Creditas, told CT.    

“Despite the significant risks abroad, issues with the energy crisis and double-digit inflation, the economic slump was mild and concentrated only to the second half of the last year,” Chief Economist at the Czech Banking Association Jakub Seidler was quoted as saying by CT.

Seidler also pointed out that combined with wage growth figures of around 10% and other positive April indicators, “economic activity is moving in a more favourable direction”.

In a social media post, Seidler stated that Wednesday’s May 3 meeting of CNB central bank’s board “may eventually bring a surprise” in the form of “a small rate increase”. The CNB board under Ales Michl has refrained from increasing rates since the board changes with Michl at the helm last summer.

The possible May increase of rates would be mainly a preventive act “against a possible weakening of the [local currency] koruna” (CZK), Seidler explained. The CNB under Michl has vowed to intervene in favour of the koruna.

However, Martin Janicko of the Czech School of Economics pointed out to CT that CZSO figures are preliminary and may contain statistical mistakes. “We may quickly find ourselves back in recession” despite the economy’s robust appearance, he said.