Czech economy grew for first time in over a year, but analysts are disappointed the jump wasn't bigger

While a record 7.8 percent annual jump in GDP sound impressive, it is only due to such a low starting point.

Raymond Johnston

Written by Raymond Johnston
Published on 30.07.2021 13:30 (updated on 30.07.2021)

The Czech economy grew by a record 7.8 percent year on year in the second quarter of 2021 and increased by 0.6 percent compared to the previous quarter, according to preliminary estimates from the Czech Statistical Office (ČSÚ).

This is the first growth in the economy on over a year, as there had been contractions for five quarters in a row. Analysts, though, expected much more growth.

The year-on-year increase in gross domestic product (GDP) exceeded the previous largest year-on-year ecomonic growth from the second quarter of 2006, which was 7.5 percent. The increase was due to the easing of restrictions on coronavirus, which hit the economy hard last year, and in particular foreign demand and increased household consumption.

“The easing of anti-epidemic measures has enabled households to partially realize deferred consumption. Household expenditures on services have also increased,” Vladimír Kermiet, director of the ČSÚ's national accounts department, said, according to the Czech News Agency (ČTK).

The year-on-year economic growth, however, was less than analysts had expected. They assumed that the economy would grow by about 9 percent due to the low comparison base from last year, which was heavily affected by the Covid restrictions.

The ČSÚ said that a positive contribution to the year-on-year GDP growth came mainly from external demand and expenditure on gross capital formation.

“Final consumption expenditure of households was also increasing. The year-on-year growth of the gross value added was influenced the most by the development in economic activities of industry. The quarter-on-quarter comparison was positively influenced mainly by a group of economic activities of trade, transportation, accommodation and food service activities,” the ČSÚ stated in its estimate.

ČSÚ's Kermiet recalled that due to a lack of material in a number of industries, inventories of work in progress had increased, which had an impact on exports of goods.

Employment was also up. It increased in the second quarter of 2021, compared to the previous quarter, by 0.8 percent, and when compared to the corresponding quarter of the previous year, it increased by 0.4 percent.

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“The preliminary result of the Czech GDP for the second quarter cannot be described as anything other than a disappointment. [Quarter -on-quarter] growth of 0.6 percent significantly lagged behind market expectations and our rather pessimistic estimate. At the same time, the economy was still declining by 0.3 percent at the beginning of the year,” ČSOB analyst Petr Dufek said in a statement.

“The year-on-year number may amaze some, but it needs to be taken into context. In a year-on-year comparison, the Czech economy jumped by 7.8 percent, but only thanks to a very low comparison base from the time of the first wave of the pandemic, when GDP fell by almost 11 percent,” he added.

But some economists were pleased that at least the downward trend had reversed. “The darkest moment always comes before dawn. But now we can say that in the second quarter of this year, the sun rose. Our economy is growing the fastest in its history and is recovering rapidly after the coronavirus crisis,” BHS chief economist Štěpán Křeček said.

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The coronavirus epidemic began to affect the Czech economy last spring. The first cases of the epidemic appeared in the country on March 1, after which the state began to introduce restrictions on trade, services, and movement of people. This caused the economy to contracted year-on-year in the already in the first quarter of 2020 by 1.5 percent.

The worst drop in GDP came in the second quarter, when it fell 10.9 percent year-on-year. The drops were less severe after that, with the third quarter down 5.4 percent and the fourth quarter down 5.3 percent.

In the first quarter of this year, the Czech economy fell by 2.4 percent year on year. Quarter-on-quarter, economic output fell by 0.3 percent.

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