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Czech economy decelerates; productivity gains are small

Company: Komerční banka, a.s.

Czech GDP dynamics have eased. Qoq growth printed only 0.5%. The Czech economy has recorded sluggish growth figures since the second half of last year. For the second quarter, this is visible also in a yoy comparison as dynamics do not include the exceptional growth from 2Q17. Yoy dynamics thus recorded a low 2.3%, clearly showing that the economy lags behind its regional peers. Hungarian GDP increased 4.6% yoy, and Polish GDP added 5.2%. Domestic dynamics correspond more with German growth, which rose 2.0% yoy. To a large extent, capacity constraints are to blame. These are most visible on the labour market. Unfortunately, we do see no notable productivity gains. Without an increase in productivity, the Czech economy cannot aim for stronger dynamics. Productivity so far shows very modest growth despite the solid investment activity of the private sector.

The growth structure was not released today. Comments by the Czech Statistical Office suggest that GDP dynamics were mainly supported by domestic demand. Consumption increased along with wage growth and a still-rosy economic outlook. Investment supported the economy in the previous quarters and contributed positively in the second quarter, but from the statistical office’s report we assume the contribution is not as strong as before. This is corroborated by the fact that external trade has surprisingly acted positively, which suggests slower imports.

The domestic economy is set to accelerate during the remainder of the year. It should be supported by a revival in the euro area led by Germany. We continue to expect positive contributions from household consumption. Investment should maintain sound growth as entrepreneurs will try to increase productivity under pressure to find a suitable labour force. Overall, we expect GDP growth to print 3.0% this year.

Tags: Economics | Finance |

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