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Industry is unstoppable when creating value added

Company: Amcham

The Czech Statistical Office (CZSO) confirmed its preliminary estimate of domestic GDP growth at 0.5% qoq and 5.0% yoy. The favourable dynamics were mainly thanks to private consumption, which increased 0.9% qoq (+4.4% yoy). Households benefit from a low unemployment rate, which improves its low every month, and sound wage growth. Moreover, consumers remain optimistic as there are no signs that the good times will come to an end anytime soon. This is also mirrored in investment activity. Businesses adjust to growing demand for output amid a stretched labour market, where it is almost impossible to find a suitable work force. Thus, they invest in a way that they do not have to hire too many personnel for their new facilities or they can free up some labour force when renewing existing facilities. Investment has thus remained at a sound level from the second quarter. In yoy terms, investment growth prints at 7.5%. Moreover, it seems there is more unfinished investment as inventory built contributed 1pp to overall GDP growth.     

In Komerční banka, we believe investment activity is supported also by the public sector, which taps EU funds. On the other hand, growing investment activity curbs the external trade balance as a big share of investment goods are imported. Net exports thus cut 0.9pp from overall GDP growth.

Industry continuously turns to production with higher value added

On the supply side, growth was thanks to industry in the third quarter. It created 1.6% more value added in qoq terms (+7.7% yoy), while its output has dropped according to monthly indicators. It thus seems the domestic economy turns to production with higher value added. That is very good news among other things for employees in the sector as it creates room for further wage increases. However, on the demand side, industry remained the only contributor to qoq growth. Other components printed no big positive or negative contribution. In a yoy comparison, contributions to overall value added are distributed much more evenly. Yet, even in this view, industry is the most important sector.

Monthly figures from the real economy showed that the economy has been accelerating in the last quarter. It benefits from the solid revival of global trade and growth of domestic demand. In all-year terms, GDP is set to increase 4.5%, which represents the second-biggest growth figure in the past 10 years. The Czech economy thus remains the high flyer of the region as it prints the highest GDP yoy dynamics in Central Europe. It should maintain its good shape next year, when it is set to add another 3.6%.

Tags: Economics | Finance |

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