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Revised GDP estimate for Q2 gains momentum

Company: Komerční banka, a.s.

The first estimate of GDP for the second quarter surprised with high quarter-on-quarter growth, which was revised upward by the Czech Statistical Office today 0.2pp to 2.5%. Thus, the Czech economy grew 4.7% yoy in the second quarter.

The structure of growth recorded, line with our expectations, a stable contribution by private consumption, which printed 1.5pp from the yoy dynamics. This reflects ever-tightening conditions on the labour market that provide support for household spending. Employment added 0.4% qoq and increased 1.3% yoy.

However, the key factor for growth in the second quarter was investments. They revived sharply and became a strong upswing for economic growth, contributing 1.7 pp to yoy growth. Their dynamics were 6.3% qoq (7.7% yoy). The CZSO reports that all categories of investment printed positive dynamics as other building and structure investment has also resumed. The sectoral breakdown will be released in a month, but we assume that the main driver is the private sector. The effect of net exports, which stands behind 2.1pp of yoy GDP growth, is also significant. Imports, which grew 6.2%, surprisingly for us do not reflect the rocket dynamics of import-demanding investments. Exports traditionally supported by the automotive industry as well as electrical equipment added 7.3% yoy in the second quarter.

The supply side of GDP was stimulated primarily by manufacturing, which delivered almost half of the growth. In addition to the traditionally strong automotive industry and downstream sectors, the production of electrical equipment and chemical industry recorded significant contributions. Chemical industry was after last year’s outages running at full steam during the second quarter. Private services and construction again contributed positively to growth. However, neither of these sectors exhausted its growth potential in the second quarter, and they will continue to grow in the second half of the year.

The publication of the first GDP estimate has forced us to raise our GDP growth forecast for the whole year from 3.7% to 4.3%, with the risk of higher growth, which has been shown today. GDP growth will continue to show positive dynamics over the rest of the year, which will be, however, weaker than the first half of the year. The yoy growth rate of investment should accelerate further in the second half of the year, according to our estimate. To a greater extent, this would also involve government investment. Nevertheless, exports could slow down as autumn arrives, as China's economic activity peaked in the spring and global trade has already begun to wind down. Even private consumption should continue to grow, albeit at a slower pace.

With regard to today's upward revision of growth and comments by CNB bank board members over the past few days, we expect the economic condition will, besides the koruna's exchange rate, be another argument that will push the CNB to rate hikes further. We think this could happen at one of the autumn monetary policy meetings. The initial movement of the exchange rate could predict such expectations when the exchange rate slipped from today’s opening at EUR/CZK26.12 to below EUR/CZK26.05.

Tags: Finance |

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