The third reading of GDP growth also confirmed a slowdown of the Czech economy at the beginning of the second half of 2016. Qoq growth was confirmed at 0.2%. Yoy growth remained without change at 1.9%. A lower surplus in the external trade balance and weaker inventory built were behind the slowdown. Household consumption was once again the main positive driver for GDP dynamics, increasing 0.9% qoq in the third quarter. We believe private consumption will continue printing favourable growth dynamics in the coming quarters, as well. This view is corroborated by the steep rise in nominal wages, which showed an increase amounting to 4.5% yoy in the third quarter.
Wages grew mainly due to the tight situation on the labour market. Given the low unemployment rate, companies are forced to compete for a qualified work force, which translates into wage growth acceleration. This is, as per today’s data, at the expense of the gross profit margins of domestic corporations.
Moreover, households are not afraid of spending as suggested by the decreasing savings rate. The contentment of households is well illustrated by consumer confidence indicators, which are close to historic highs. Households are also investing more, which is reflected on the housing market as flat prices are growing rapidly.
Our preliminary estimate points to 0.8% qoq growth in the final quarter of 2016, which would lift the advance for the whole year to 2.5%. In 4Q16, we expect an increase in the external trade balance. This is suggested by sound dynamics in the industrial sector, solid forward-looking indicators and especially the strong performance of the German economy, which should, according to SG economists, print very good results. The good performance will spill over into 2017, as well. This year, the economy should mildly accelerate and growth should reach 2.7%.