Economic activity in 2013 Q4 comes in well above the CNB forecast
According to the CZSO’s estimate released today, GDP adjusted for price, seasonal and calendar effects rose by 1.3% year on year in 2013 Q4. In quarter-on-quarter terms, it was up by 1.9%. Compared to the CNB forecast, the reported change in economic activity in 2013 Q4 is 1.2 percentage points higher in year-on-year terms and 1 percentage point higher 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 three quarters of 2013. In 2013 as a whole, GDP decreased by 0.9% year on year.
The upward deviation of GDP in Q4 from the CNB forecast was due mainly to a visible increase in gross capital formation, whereas the CNB had been expecting a continued – albeit slowing – decline. At the same time, stronger-than-expected frontloading of cigarettes prior to the increase in duty seems to have had a major effect on GDP growth. As a result, total gross investment (including inventories) recorded a slight annual increase at the end of 2013, while the CNB had been forecasting a sizeable annual decrease. Somewhat faster-than-expected annual growth in household consumption also fostered higher GDP growth. The said components of domestic demand seem to have benefited from the initial reaction of households and corporations to the weakening of the koruna's exchange rate. By contrast, the annual rise in net exports was somewhat weaker than forecasted. This was a result of slower-than-expected annual growth in exports of goods and services, while the forecast for imports materialised almost exactly. Annual growth in government consumption was also close to the CNB forecast.
Overall, we can say that the Czech economy rebounded visibly from the bottom of the business cycle at the end of 2013, although this was largely due to one-off factors which will be partly offset in 2014 Q1. However, the economy is still operating well below its potential and its downward effect on prices thus persists. The published data for 2013 Q4 represent a risk to the existing CNB forecast towards somewhat higher-than-expected economic activity this year. According to this forecast, GDP will grow by 2.2% this year thanks to a recovery in external demand and easy monetary conditions via the weaker exchange rate of the koruna, while fiscal policy will have a roughly neutral effect. The weakening of the exchange rate will account for about 1 percentage point of this growth, on account of stronger price competitiveness of Czech products and lower real interest rates. The decision made in November to start using the exchange rate as an additional monetary policy instrument thus significantly contributed to stabilising the economy, averting the threat of deflation and fostering a faster recovery in economic growth and the labour market. In 2015, GDP growth will pick up further to 2.8%.
Tomáš Holub, Executive Director, Monetary and Statistics Department
The CNB comments on the GDP figures for 2013 Q4
Economic activity in 2013 Q4 comes in well above the CNB forecast
According to the CZSO’s estimate released today, GDP adjusted for price, seasonal and calendar effects rose by 1.3% year on year in 2013 Q4. In quarter-on-quarter terms, it was up by 1.9%. Compared to the CNB forecast, the reported change in economic activity in 2013 Q4 is 1.2 percentage points higher in year-on-year terms and 1 percentage point higher 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 three quarters of 2013. In 2013 as a whole, GDP decreased by 0.9% year on year.
The upward deviation of GDP in Q4 from the CNB forecast was due mainly to a visible increase in gross capital formation, whereas the CNB had been expecting a continued – albeit slowing – decline. At the same time, stronger-than-expected frontloading of cigarettes prior to the increase in duty seems to have had a major effect on GDP growth. As a result, total gross investment (including inventories) recorded a slight annual increase at the end of 2013, while the CNB had been forecasting a sizeable annual decrease. Somewhat faster-than-expected annual growth in household consumption also fostered higher GDP growth. The said components of domestic demand seem to have benefited from the initial reaction of households and corporations to the weakening of the koruna's exchange rate. By contrast, the annual rise in net exports was somewhat weaker than forecasted. This was a result of slower-than-expected annual growth in exports of goods and services, while the forecast for imports materialised almost exactly. Annual growth in government consumption was also close to the CNB forecast.
Overall, we can say that the Czech economy rebounded visibly from the bottom of the business cycle at the end of 2013, although this was largely due to one-off factors which will be partly offset in 2014 Q1. However, the economy is still operating well below its potential and its downward effect on prices thus persists. The published data for 2013 Q4 represent a risk to the existing CNB forecast towards somewhat higher-than-expected economic activity this year. According to this forecast, GDP will grow by 2.2% this year thanks to a recovery in external demand and easy monetary conditions via the weaker exchange rate of the koruna, while fiscal policy will have a roughly neutral effect. The weakening of the exchange rate will account for about 1 percentage point of this growth, on account of stronger price competitiveness of Czech products and lower real interest rates. The decision made in November to start using the exchange rate as an additional monetary policy instrument thus significantly contributed to stabilising the economy, averting the threat of deflation and fostering a faster recovery in economic growth and the labour market. In 2015, GDP growth will pick up further to 2.8%.
Tomáš Holub, Executive Director, Monetary and Statistics Department