Czech economy accelerates by 4.4 percent in second quarter

17-08-2015

The Czech Republic has the fastest expanding economy in Europe, with a freshly issued first estimate putting year-on-year growth in the second quarter at 4.4 percent.

Photo: David Castillo Dominici / FreeDigitalPhotos.netPhoto: David Castillo Dominici / FreeDigitalPhotos.net Friday’s news from the Czech Statistics Office surprised many analysts, who had expected growth of around one percent less. It followed GDP expansion of 4.0 percent in the first three months of 2015.

The Ministry of Finance and Czech National Bank are predicting growth of slightly below 4.0 percent for the whole of this year. The economy would thus approach the situation it was in back in 2007, when it expanded by 5.5 percent.

However, estimates for next year are for growth of just under 3.0 percent. This is because this year the Czech state is attempting to draw as much as possible on the last of the EU funds that it received during the 2007 to 2013 period.

These monies and investments financed by them should account for six tenths of a percentage point of growth in 2015, Hospodářské noviny wrote on Monday.

The structure of GDP growth in the second quarter should be known in a fortnight’s time. But going by data for the first three months of this year the private sector is likely to be the main driver of economic performance.

Indeed, household consumption accounted for over a third of the growth registered between January and April. Foreign trade was impacted, with imports growing faster than exports thanks to higher household demand for foreign-made products.

According to Czech Statistics Office data, unemployment in the Czech Republic is now at 5 percent, the lowest rate for six years.

ING Bank chief economist Jakub Seidler told Monday’s Hospodářské noviny there was no room for a further fall in the jobless figures. But he warned that it was only a question of time before salaries, which have been lagging GDP growth, start to rise.

Wages increased by 2.2 percent in the first quarter. Unions are pushing for higher pay rises, while the Social Democrat prime minister, Bohuslav Sobotka, has called for employers to share increased profits with staff.

The Czech National Bank predicts salary growth of 3.0 percent next year, while the Ministry of Finance predicts 4.0 percent and union leaders have said they will be demanding 5.0 percent.

The news of the estimated 4.4 percent growth in the first quarter has again put the spotlight on the wisdom of the central bank’s policy of limiting the crown’s gains.

In July the Czech National Bank intervened to weaken the crown for the first time since 2013 after the Czech currency gained 2.4 percent in the first quarter.

It aims to keep its weak crown policy in place until at least the second half of next year but some politicians, including President Miloš Zeman, and analysts say that approach has served its purpose and a fresh one is needed.

17-08-2015