The Czech Statistical Office (CZSO) revised the GDP statistics for 4Q17. Qoq growth was adjusted to 0.8% (from originally 0.5%) and yoy to 5.5%. The all-year growth in 2017 thus reached 4.6%. The revision was made mainly on the back higher government expenditures compared with previous estimates. The investments were also revised slightly up, but the move was offset by a downward revision of inventories. Besides government consumption, growth in 4Q was driven by all items of domestic demand. External trade contributed slightly negatively. Private consumption and investment activity were the main growth drivers, contributing roughly 2pp each. The inventory built increased significantly and added another percentage point. On the supply side, we see two dominant drivers. The value added in industry increased 7.4% while private services grew 6.3%. These two components thus created a major part of the GDP dynamics.
NFCs’ profits were resilient to wage growth and the appreciating koruna
Sector statistics revealed that corporate profits are resilient to rapid wage growth and the appreciating koruna. That happened thanks to strong domestic and external demand. Profit margins increased in both yoy and qoq terms. The investment rate also recorded positive results when it reached 30%. However, households benefited the most from positive economic developments. Real income rose 4.8% yoy while consumption per capita increased 5.6%. That is visible in the savings rate, which dropped to 10.4%. In contrast, households’ investment rate decreased 0.3pp to 8.3%. That is probably linked to the lower affordability of residential housing. Households thus invest less in housing and spend more on consumption.
Capital formation was one of the two main drivers of economic growth. It was mainly thanks to NFCs, which invested in machinery. The contribution of the public sector was almost negligible.
Spring revision set to change the figures once more; this year will remain successful
Looking at the qoq figures, the flash estimates represented a disappointment, which was only partially improved by today’s reading. The domestic economy increased only 0.8%. That is, together with Slovakia, the weakest figure from the region. To some extent, seasonal factors play a role. They increased growth in the second quarter while impeding dynamics in the second half of the year. The June revision should sort out the problem and should also mitigate the contradiction between monthly indicators suggesting a strong economic performance and quarterly figures showing a slowdown in the second half of the year. The overall growth of 2017 amounting to 4.6% should not be affected by the seasonal factors revision, according to Komerční banka.
We expect similar developments in 2018. Private consumption will continue to benefit from record-low unemployment and strong wage growth. Sound investment activity is set to continue, and the EU funds inflow is set to strengthen. However, investment and consumption are import-intensive, which will be reflected in the trade balance. We expect no contribution from external trade this year.