Growth in economic activity in 2019 Q1 in line with CNB forecast

The CNB comments on the GDP figures for 2019 Q1

According to the CZSO’s estimate released today, gross domestic product adjusted for price, seasonal and calendar effects rose by 2.6% year on year in 2019 Q1. In quarter-on-quarter terms, economic activity increased by 0.6%.

The annual growth of the Czech economy in 2019 Q1 was in line with the CNB forecast. Nevertheless, partial deviations were recorded in the individual demand components. Household and government consumption grew somewhat faster than forecasted. Conversely, growth in gross capital formation was lower than forecasted because of lower-than-expected growth in fixed investment. The growth rates of both exports and imports of goods and services were also lower than the CNB had expected. However, the resulting contribution of net exports to annual GDP growth was roughly neutral and thus broadly in line with the forecast.

The published figures overall bear out the message of the CNB’s current forecast. According to the forecast, the Czech economy will grow by around 2.5% this year. The GDP growth will be driven by all components of domestic demand. Still solid growth in household consumption will reflect high, albeit gradually slowing, growth in household income. Persisting labour shortages will motivate firms to invest. Government investment will also continue to grow, with a significant contribution from projects co-financed from EU funds. Fiscal policy will contribute to domestic demand growth this year also via a rise in public sector pay, pensions and social benefits. Net exports, by contrast, will hinder economic growth this year owing to slower growth in external demand and persisting domestic capacity constraints. Czech economic growth will pick up slightly next year due to higher export growth.

Petr Král, Executive Director, Monetary Department