According to the advanced estimate, the Czech economy decreased 3.6% qoq and 2.2% yoy in the first quarter. At the end of the previous year, it added 0.5% qoq and 2% yoy. The main reason for the GDP decrease was the government measures applied in March, which have prevented the spread of the coronavirus. Compared with our estimate of a 7.6% qoq decline in GDP, the actual impact of the pandemic on the Czech economy was probably less severe. On the other hand, the market expectation was correct.
This is, however, an advanced estimate that likely includes data uncertainty to a large extent. The March lockdown of the Czech economy led into a shutdown of most services and retail. Production was also stopped in a part of the manufacturing industry. It is therefore a question of whether the statistical office was able to collect all underlying data properly. It could happen that the CZSO will receive some data with a delay and then we could expect a significant refinement in the second release. In our view, the actual Czech economic decline in 1Q could be more pronounced than shown by today’s data. From this point of view, the CZSO’s comments are interesting. It has said that the decrease in gross value added was mostly affected by the development in manufacturing and in the branches of trade, travel, hotels and restaurants. Nevertheless, other small services are not mentioned, although they obviously belong to those most affected by the government measures. The data uncertainty is thus considerable here.
The structure of GDP growth is not known at this moment. The statistical office only stated that negative annual growth was caused mainly by a decrease in foreign demand and investment. Government expenditures offset this partly. All of this happened in the environment of a paralysed global economy with limited international trade and an uncertain economic outlook. Household consumption was not mentioned in the CZSO comments, since the impacts of the pandemic were likely dampened by a frontloading of Czech households. But more pronounced impacts can be expected in the second quarter.
We currently observe a release of the most restrictive measures in the Czech economy and the economic rebound should therefore follow in the second half of this year. The rebound will, however, depend to a large extent on a recovery in foreign demand, because of the large Czech economic openness. In relation to that, our forecast expects an annual decrease of the Czech economy by 6.5% in this year and recovery of growth at 9.7% in the next year.