Economic activity lagged behind CNB expectations in 2013 Q3
According to the CZSO’s estimate released today, GDP adjusted for price, seasonal and calendar effects declined by 1.3% year on year in 2013 Q3. In quarter-on-quarter terms, it decreased by 0.1%. Compared to the CNB forecast, the reported change in economic activity in 2013 Q3 is 0.5 percentage point lower in year-on-year terms and 0.3 percentage point lower in quarter-on-quarter terms. This difference in the year-on-year and quarter-on-quarter deviations from the CNB forecast is due to a revision of the GDP time series for the first half of this year. In the first three quarters of 2013 as a whole, GDP fell by 1.8% year on year.
The downward deviation of GDP developments in Q3 from the CNB’s expectations was connected with a slight annual decline in household consumption, whereas the CNB had expected a modest rise. An unexpected year-on-year decrease in net exports acted in the same direction. This was due to lower-than-expected exports and higher-than-expected imports of goods and services. By contrast, government consumption recorded faster growth in 2013 Q3 than expected by the CNB. The decline in gross capital formation was significantly smaller than predicted, owing to a rise in inventories, which was probably the main cause of the higher-than-expected imports. Conversely, the year-on-year drop in fixed investment was somewhat sharper than expected by the CNB.
The new data represent a risk towards lower-than-expected economic activity this year. Overall, we can still say that the Czech economy has been close to the trough of the business cycle for several quarters now, operating well below its potential and fostering a decline in prices.
At its November meeting, the CNB Bank Board decided to start using the exchange rate to further ease the monetary conditions, avert the threat of deflation and facilitate an earlier return of inflation to the CNB’s target. Accordingly, the Bank Board assessed the alternative scenario of the forecast, which quantifies the impacts of the koruna exchange rate weakening to close to CZK 27/EUR, as being the most likely future scenario. In this scenario, the exchange rate weakening fosters a faster economic recovery via higher exports, lower real interest rates and subsequently also more favourable labour market developments supporting household consumption. The economy will grow by 2.1% next year, i.e. more than one percentage point faster than if the CNB had not eased the monetary conditions.
Tomáš Holub, Executive Director, Monetary and Statistics Department
The CNB comments on the GDP figures for 2013 Q3
Economic activity lagged behind CNB expectations in 2013 Q3
According to the CZSO’s estimate released today, GDP adjusted for price, seasonal and calendar effects declined by 1.3% year on year in 2013 Q3. In quarter-on-quarter terms, it decreased by 0.1%. Compared to the CNB forecast, the reported change in economic activity in 2013 Q3 is 0.5 percentage point lower in year-on-year terms and 0.3 percentage point lower in quarter-on-quarter terms. This difference in the year-on-year and quarter-on-quarter deviations from the CNB forecast is due to a revision of the GDP time series for the first half of this year. In the first three quarters of 2013 as a whole, GDP fell by 1.8% year on year.
The downward deviation of GDP developments in Q3 from the CNB’s expectations was connected with a slight annual decline in household consumption, whereas the CNB had expected a modest rise. An unexpected year-on-year decrease in net exports acted in the same direction. This was due to lower-than-expected exports and higher-than-expected imports of goods and services. By contrast, government consumption recorded faster growth in 2013 Q3 than expected by the CNB. The decline in gross capital formation was significantly smaller than predicted, owing to a rise in inventories, which was probably the main cause of the higher-than-expected imports. Conversely, the year-on-year drop in fixed investment was somewhat sharper than expected by the CNB.
The new data represent a risk towards lower-than-expected economic activity this year. Overall, we can still say that the Czech economy has been close to the trough of the business cycle for several quarters now, operating well below its potential and fostering a decline in prices.
At its November meeting, the CNB Bank Board decided to start using the exchange rate to further ease the monetary conditions, avert the threat of deflation and facilitate an earlier return of inflation to the CNB’s target. Accordingly, the Bank Board assessed the alternative scenario of the forecast, which quantifies the impacts of the koruna exchange rate weakening to close to CZK 27/EUR, as being the most likely future scenario. In this scenario, the exchange rate weakening fosters a faster economic recovery via higher exports, lower real interest rates and subsequently also more favourable labour market developments supporting household consumption. The economy will grow by 2.1% next year, i.e. more than one percentage point faster than if the CNB had not eased the monetary conditions.
Tomáš Holub, Executive Director, Monetary and Statistics Department