The performance of the Czech economy in the first quarter was weaker than expected by the Czech National Bank (CNB). Household consumption, investment and inventories fell more than the CNB expected. By contrast, exports and government consumption exceeded expectations. Gross domestic product (GDP) fell by 0.4 per cent year-on-year in the first quarter, while the CNB had expected a 0.2 per cent decline in its spring forecast.
A more pronounced decline in consumption
“The published data confirm that the Czech economy is slowly emerging from the shallow recession that began in the second half of last year. Consumption by households, which are facing a deep fall in their real incomes, fell slightly more sharply in the first quarter compared to the CNB’s expectations,” said Král. The central bank had forecast a 5.9 percent drop in household consumption, which eventually reached 6.3 percent.
The drop in gross capital formation, which includes investment and inventories, was deeper than expected. The CNB had forecast a decline of 2.1 per cent, but it reached 8.4 per cent. However, according to the central bank, the decline in inventories in particular may not be a negative signal for the economy. “A further reduction in the contribution of the change in inventories, which was even more pronounced than forecast, signals the fading of problems in supply and production chains,” King said.
The impact of the fall in real incomes
“The economic slowdown from the second half of last year will still reverberate in the first half of this year, mainly due to the continued decline in household consumer spending. Czech households continue to be affected by a deep decline in real incomes,” Král said. “Fixed investment will resume its growth this year due to the still good financial situation of enterprises and, eventually, to the recovery of foreign demand. In addition, export activity will be supported by the unwinding of difficulties in the supply of materials and production components,” he added.
Source Czech Press Office