Growth in economic activity comes in slightly below the CNB forecast in 2019 Q3

The CNB comments on the GDP figures for 2019 Q3

According to the CZSO’s estimate released today, gross domestic product adjusted for price, seasonal and calendar effects rose by 2.5% year on year in 2019 Q3. In quarter-on-quarter terms, economic activity increased by 0.4%.

The annual growth of the Czech economy in 2019 Q3 was 0.2 percentage point below the CNB’s forecast. The slower-than-expected GDP growth was due to somewhat more moderate growth in household consumption. A lower-than-forecasted contribution of net exports acted in the same direction. This was due to a higher-than-expected increase in goods and services imports, whereas total exports were in line with the forecast. By contrast, the contributions of government consumption and gross capital formation to GDP growth were bigger than forecasted. Within the latter, the expectations of approximate year-on-year stagnation of fixed investment were fulfilled, whereas the contribution of change in inventories was higher than expected.

The published figures overall bear out the message of the CNB’s current forecast. According to the forecast, the growth of the Czech economy is slowing and will reach 2.6% for this year as a whole. Growth in domestic economic activity will moderate further to 2.4% next year owing to weaker external demand. It will accelerate to 2.8% in 2021, returning close to the potential output growth rate of 3%. In the years ahead, GDP growth will continue to be driven mainly by households’ consumption expenditure in a context of continued, albeit gradually slowing, growth in their income. Fiscal policy will contribute to domestic demand growth mainly via a rise in public sector pay, pensions and social benefits. Government investment expenditure will also increase and private investment will return to growth next year. The positive contribution of net exports will temporarily disappear during next year as a result of a transitory slowdown in external demand growth.

Petr Král, Executive Director, Monetary Department