The preliminary GDP figure for the first quarter surprised on the upside. The economy fell just 0.3% quarter on quarter, with pandemic restrictions being in place throughout the quarter. For the whole year, we expect GDP growth to be around 3%, although pandemic-related uncertainty remains elevated.
1Q21 GDP severely impacted by the pandemic
The effects of the pandemic mean that first-quarter economic growth was less than had been generally expected at the turn of the year. With restrictions in place throughout the quarter, we assume that household consumption fell as well as investment. Export dynamics are likely to have slowed since the previous quarter, reflecting problems with semi-conductor supply. More information will be available at the beginning of June, as the Czech Statistical Office does not publish details in its flash GDP release.
Year-on-year decline eased due to base effect
Year on year, however, the downturn in economic growth slowed from -4.8% in 4Q20 to -2.1%. The y/y comparison incorporates the first coronavirus (COVID-19) wave and restrictions in the second half of March 2020 – these were more severe than this year, with industry voluntarily shutting down production in March and April 2020.
Better than consensus expectations
Reuters consensus assumed a q/q GDP decline of 1% and the latest MinFin forecast assumed -0.9% q/q (-2.7% y/y). The winter CNB forecast pencilled in -0.2% q/q (-2.4% y/y), but this older forecast did not assume more adverse pandemic developments in the first quarter. Despite economic restrictions due to the pandemic, the performance of the domestic economy has exceeded the expectations of recent quarters.
For the whole year, GDP expected to grow by 3%
For the whole year, we expect GDP growth to be around 3%, mainly due to the economic recovery in the second half of the year and the low base effect. Still, uncertainty remains high due to the pandemic situation.
Jakub Seidler is the chief economist at ING in the Czech Republic. This note first appeared on ING’s THINK.ING portal here.
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