In 4Q, GDP growth was supported by the easing of supply-side bottlenecks, which was reflected in the recovery of industrial production. Car production, which has been hit the most by missing components, made a significant contribution. Various industry surveys point to a smoother supply of production inputs. In line with the recovery in industry, the main source of qoq GDP growth in 4Q was net exports, which contributed +2.1pp. On the other hand, the contribution of inventories was slightly negative, likely due to the completion of some of the unfinished goods from previous quarters. Fixed investment grew by 0.5% qoq in 4Q. The breakdown by type of capital indicates that this was likely due to higher government investment. The strengthening of government investment in 4Q was visible in advance through the state budget.
Household consumption was weak in 4Q, declining by 1.8% qoq. This is likely the first sign of the negative impact of high inflation on household spending, which we expect to persist for much of this year. Inflation rose to 9.9% yoy in January, and we expect it to increase a bit more in the coming months. For the full year, we forecast average inflation of 8.8%. The impact on household consumption is heightened by the fact that price increases are broad-based, and include basic goods and services.
The production side of national accounts offers a different picture of the structure of economic growth. According to this, total gross value added in the economy grew by 0.7% qoq. Trade and services contributed the most, with growth in value added of 0.5% and 1.1% qoq, respectively. Leading indicators of sales in retail and services also showed an increase. Therefore, the significant decline in household consumption in 4Q is difficult to explain from this point of view. The value added in manufacturing dropped by 1.6% qoq in 4Q. In the case of industry, however, an explanation can likely be found in the fact that the products exported in 4Q (especially cars) were those previously waiting for missing components. Therefore, their production was likely already included in value added statistics in previous quarters.
The domestic economy was less inflationary in Q4 than predicted by us and the CNB. Household consumption fell qoq, and grew by only 9.3% yoy. Our forecast was for 12.4% yoy, and the CNB expected 13.2% yoy (for GDP as a whole, the CNB forecast was roughly in line with data). In our forecast, lower household consumption was offset by higher inventories. Net exports developed roughly in line with our expectations. The publication of national accounts also brought slight historical revisions, especially in the first two quarters of last year, with qoq GDP growth increasing by about 0.1pp in both cases.
The economy grew by 3.3% in 2021, and we expect it to accelerate to 4.9% this year. However, in the light of current events, this forecast already looks rather optimistic. The main source of economic growth this year should be net exports and a recovery in industrial production. However, industrial performance could be significantly threatened by the potential disruption of energy imports from Russia.
Economic and Strategy Research
10th December 2021
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