“We expected a more pronounced slowdown in economic growth” says Minister Havlíček on GDP. Photo by Ministry of Industry and Trade of the Czech Republic
The Czech economy slightly slowed down at the beginning of this year. According to the preliminary estimate, the gross domestic product, adjusted for price, seasonal and calendar effects, rose by 2.5% year on year in the first quarter of 2019, slowing down by 0.1 pp compared to year-on-year growth in 2018. This is due to the high comparison base of last year, when the economy’s performance increased by 4.2%. According to the data comparing QoQ development, the gross domestic product slowed down to 0.5% in the first quarter of 2019 when compared to 0.8% in the 4th quarter of 2018.
“Based on the available industry statistics, we expected a more pronounced slowdown in economic growth” said Industry and Trade Minister Karel Havlíček. After adjusting for the number of working days, the total industrial production in Q1 increased by only 0.2% year-on-year and was by 1.2 pp lower than in Q4 2018. Nevertheless, according to the CZSO, it was the manufacturing industry that contributed most to the creation of gross value added. “In the long run, developments in the computer, electronic and optical equipment industries are particularly encouraging. The growth dynamics of this industry is highest and corresponds to the trend of the rapid growth of digital technologies.” added Minister Havlíček.
One of the barriers to further industrial expansion is the lack of workers. Unemployment is at its lowest level since June 2008 and its significant decline is virtually no longer possible. In April this year, employment offices registered about 210,000 job seekers, and thus scissors between the number of vacancies and job seekers in the Czech Republic have been widening more and more.
Similarly to last year, services will probably play the role of another source of growth on the supply side of the economy. In Q1, sales in services, net of calendar effects, increased by 2.5% year-on-year at constant prices. Sales in information and communication (+ 5.8%) as well as professional, scientific and technical activities (+ 3.2%) grew above average, followed by a stable growth of proceeds from hotel and restaurant services (2.2%). The construction industry also showed good results and its production in Q1 increased by 2.3%.
“Based on the available industry statistics, we expected a more pronounced slowdown in economic growth.” Karel Havlíček, Minister of Industry and Trade of the Czech Republic
“Based on the available industry statistics, we expected a more pronounced slowdown in economic growth.”
The preliminary gross domestic product estimate includes only data on its overall development, while the CZSO will publish more detailed structure data upon the update of results as of 31 May. Retail sales results, which are available so far, suggest that the economic growth is driven mainly by the household consumption. Retail sales, net of calendar effects, excluding motor vehicles increased by 5.4% year-on-year at constant prices in 2019. “The consumer mood is still positive, supported by a rapid wage growth, extremely low unemployment and record economic activity” added Minister Havlíček. On the other hand, we expect a weakening of the foreign trade contribution, both due to the strong domestic demand, which increases imports, as well as the still insignificant economic activities of the main trading partners. According to Eurostat’s flash estimate, the euro area economy grew by 1.2% year on year in the first quarter of 2019, same as in Q4 2018. According to the data available for individual countries, it grew by 1.8% in the UK, 1.4% in Austria and 0.7% in Germany.
The slowdown in the development of the Czech economy in Q1 was basically expected, and we therefore do not change our estimate that the annual GDP growth rate could be around 2.5%. However, this expectation is subject to significant uncertainties. Apart from still unclear Brexit issue, an increase in protectionism and a slowdown in global growth represent a significant external risks. Domestic uncertainties are associated with clear signs of overheating, especially in the labour market and real estate. “Labour market imbalances create a strong pressure on wage growth, which could, for a longer period of time, adversely affect the competitiveness of companies” concluded Minister Havlíček.
Source: Ministry of Industry and Trade of the Czech Republic
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