GDP comes in above the CNB forecast in 2021 Q1

The CNB comments on the GDP figures for 2021 Q1

According to the CZSO’s estimate released today, gross domestic product adjusted for price, seasonal and calendar effects dropped by 2.1% year on year in 2020 Q1. In quarter-on-quarter terms, economic activity decreased by 0.3%.

The year-on-year decline of the Czech economy in 2021 Q1 was lower than the CNB’s forecast had expected. The deviation was due predominantly to gross investment, which increased year on year contrary to expectations; in particular, additions to inventories were markedly higher than forecasted. By contrast, the deviation from the forecast was dampened by the contribution of net exports surprisingly turning negative. The year-on-year dynamics of exports and imports of goods and services were higher than expected. Imports recorded a more significant upward deviation from the forecast, mainly as a result of the unexpectedly strong additions to inventories, which are highly import-intensive. Government consumption rose broadly in line with expectations. The household consumption forecast also materialised. Despite continued government support, the decline in household consumption remained substantial in Q1 owing to the shutdowns of the economy.

The published data reflect the effect of the peaking coronavirus pandemic and related measures on domestic economic activity at the start of this year. Consequently, huge uncertainty persisted in Q1, affecting both economic life itself and the way it is captured by the statistical data. The deviation of the published data from the CNB forecast should therefore be seen in this context. The dampening effect of the pandemic will also be partly visible in Q2. Nevertheless, GDP will rise strongly year on year in Q2. However, this will be due mainly to last year’s economic downturn during the first wave of the pandemic and therefore to a low comparison base. In the second half of this year, the domestic economy will see truly robust and lasting growth thanks to the already commenced reopening of retail and services, reflecting the gradual immunisation of the population. Industry will also begin to function smoothly again. As in 2020, expansionary fiscal policy will dampen the negative impacts of the pandemic on economic activity this year. Household and corporate sentiment has started to improve. Household spending, deferred during the pandemic and gradually resumed thereafter, will lead to renewed growth in household consumption, which will become the driver of the economic recovery. Overall, the Czech economy will return to growth this year, although the year-on-year dynamics will be highly volatile during the year. Economic growth will accelerate markedly next year.

Petr Král, Executive Director, Monetary Department