4th June 2018

CNB: Growth in economic activity comes below CNB forecast in 2018 Q1

According to the estimate of the Czech Statistical Office released on June 1, gross domestic product adjusted for price, seasonal and calendar effects rose by 4.4% year on year in 2018 Q1. In quarter-on-quarter terms, economic activity increased by 0.4%. Growth in gross value added slowed to a lesser extent (to 4.5% year on year and 0.7% quarter on quarter). Following last year’s very strong rates, annual GDP growth is thus slowing as expected. This slowdown reflects gradually slowing growth in external demand combined with increasingly strong supply-side constraints in the domestic economy.

The economic growth recorded in 2018 Q1 was below the CNB forecast in both year-on-year and quarter-on-quarter terms. This was due mainly to a stronger negative contribution of net exports and partly also to lower additions to inventories. Although household consumption also showed somewhat slower growth, its dynamics remained robust due to a strong labour market and ensuing fast growth in household income. Conversely, fixed investment made a larger-than-forecasted contribution to GDP growth, probably due mainly to import-intensive investment by the private sector. Higher-than-forecasted growth was also recorded for government consumption.

Overall, growth in economic activity slowed in 2018 Q1 from last year’s high pace. The current CNB forecast had expected this, albeit to a slightly lesser extent. According to the forecast, the growth of the Czech economy will slow from last year’s high pace, but will remain well above 3%. The increase in economic activity will be driven by continued brisk growth in household consumption and  private and government investment. Fiscal policy will also  support domestic demand growth via rising current government expenditure. By contrast, the current positive contribution of net exports to the growth of the Czech economy will disappear. It will reflect, on the one hand, faster growth in domestic demand, which will support imports, and on the other hand appreciation of the koruna, which will dampen export growth.


Source: Czech National Bank


Czech economic analysts look into the effects of rising wages and weaker koruna on possible CNB decision to increase interest rates - experts suggest the end of June or August/September.


Members of the American Chamber of Commerce in the Czech Republic