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Czech GDP (Q1 2022)

Slowdown in Q1, contraction likely in Q2

  • The 0.7% q/q expansion of Czech GDP in Q1 was slightly stronger than expected, although it still marked a slowdown in growth and, in particular, there were signs of weakness at the end of the quarter. We think that spillovers from the war in Ukraine will weigh heavily on industry and cause the economy to contract in Q2.
  • The expansion was slightly stronger than we (+0.5% q/q) and the consensus (+0.4% q/q) had expected given that spillovers from the war in Ukraine looked to have taken a bigger toll on activity at the end of the quarter. In year-on-year terms, GDP rose by 4.6%. GDP was still 1% below its pre-pandemic level of Q4 2019, meaning that the Czech economic recovery remains among the slowest in Europe. (See Chart 1.)
  • This release does not contain a detailed breakdown, but monthly data showed that the rebound was probably driven by services (which bounced back as the hit to the sector from the Omicron variant eased) as well as stronger construction output. (See Table 1.) The expansion in those sectors seemingly outweighed the hit to industrial production, which weakened due to a large fall in car production.
  • We expect the economy to contract in Q2. Supply shortages as a result of the war in Ukraine, which look to have hit car production hard in March, are likely to continue in the coming months. While a continued recovery in tourism and hospitality will lend some support to the economy, we doubt that this will be sufficient to offset falls in industrial output.
  • As a result we expect GDP to contract by 0.4% q/q in Q2, and stagnate for the remainder of the year. For now, we maintain our forecast for GDP to expand by just 2.0% in 2022.

Chart 1: Czech GDP (SA, CZKbn)

Sources: Refinitiv, Czech Statistics Office, Capital Economics

Table 1: Czech GDP & Monthly Activity Data

GDP (SA)

Monthly Activity Data (% m/m, calendar and working day adjusted)

% y/y

% q/q

Construction

Ind. Prod.

Retail Sales1

Accom. & Food

Q2 21

8.7

1.4

Nov-21

2.1

5.2

-0.8

-0.8

Q3 21

3.6

1.7

Dec-21

1.8

-2.7

-2.7

-19.2

Q4 21

3.6

0.8

Jan-22

1.7

3.3

2.2

7.0

Q1 22

+4.6

+0.7

Feb-22

4.9

-2.4

-0.1

4.5

Sources: Refinitiv, Czech Statistics Office. 1includes motor vehicles


Joseph Marlow, Assistant Economist, joseph.marlow@capitaleconomics.com

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