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ING Bank: Czech economy continues excellent growth trajectory in 3Q

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The Czech Statistical Office released GDP growth for 3Q15, which confirmed that the Czech economy remains in very good shape. Indeed, GDP increased by 4.5% YoY and by 0.5 % QoQ. Although these are slightly lower prints compared with 2Q15, when GDP accelerated by 4.6% YoY and 1.0% QoQ, it is sometimes useful to assess economic growth from the perspective of gross value added (GVA), which is not influenced by the effect of taxes. From this perspective, the Czech economy even accelerated in 3Q15 compared with the previous quarter (3.9% vs 4.3% YoY in 3Q15).

More detailed information regarding the structure of growth shows that the favourable economic development has spread throughout the entire Czech economy and was observed in most sectors. The most pronounced growth comes from the manufacturing industry, which picked up by 7.9% YoY and contributed to the economy’s overall annual growth most significantly, by 2 percentage points. Meanwhile, the services sector also contributed significantly, while the construction sector accelerated to 5.5% YoY from 2.6% in 2Q15.

On the demand side, household consumption continued to grow by 3% YoY. The good news is that spending on durable goods remained high, and even accelerated above 10% YoY. Investments also accelerated further, reaching 8.3% YoY versus 7.4% in 2Q15, which is the positive effect of this year’s EU funds withdrawal. This is notable in the structure of investments, as investments in infrastructure projects picked up by 12.5 % YoY (10.9% in 2Q15, but 1.7% on average in 2014). Such pronounced YOY growth illustrates well the intensity of investments, as this dynamic is the strongest in Czech history. Also, investment in transport equipment continues on its high growth trajectory, reaching c. 14% YoY this year.

Overall, 3Q15 GDP and its structure represent positive news and confirm that domestic economic activity is accelerating and spreading throughout the whole economy. This year, GDP growth will be exceptional – above 4% YoY. Nevertheless, this high growth will be partially driven by the withdrawal from the currently ending programme of EU funds, which accelerates investment activity, and also due to low oil prices and the much eased monetary and fiscal policy. Next year, however, most of these positive factors are set to peter out and GDP growth should thus slow down to below 3% YoY.

Author: Jakub Seidler, Chief Economist, ING Bank Czech Republic

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