Pandemic resurgence threatens first shoots of economic recovery

According to new data from the Czech Statistical Office, the Czech economy grew by 2.8 percent year on year in Q3 2021. Compared to the previous quarter, gross domestic product (GDP) increased by 1.4 percent. 

The results show promising economic growth for the country amid renewed business activity this summer. But with Covid cases sharply increasing with the arrival of colder weather and supply chain issues continuing to wreak havoc in some industries, this growth could be under threat.

Data from the Statistical Office showed that domestic demand was the main driver of GDP growth. Household consumption expenditures were a key factor in stronger economic performance. On the other hand, a decline in exports was recorded which had a significant negative effect on GDP.

“The trade and services sector has improved the most,” said Vladimír Kermiet, director of the Statistical Office’s national accounts department. In the manufacturing industry, though, a lack of components meant “a large portion of work in progress ended up in inventories, which was reflected in the negative foreign trade balance."

Global supply chain problems have led to serious shortages and price increases in heavy industries such as manufacturing and construction. Škoda Auto recently announced a pause in production due to a lack of vital chips for cars, leading to serious financial losses on a par with those seen during pandemic lockdowns.

Such negative developments affected economic growth in Q3 which, although promising, fell slightly short of what analysts had earlier predicted. 2.8 percent growth was at the lower end of the predicted growth range; while the quarterly GDP increase of 1.4 percent is something of a disappointment compared to the anticipated increase of almost two percent.

The resurgence of Covid in the Czech Republic, which has seen cases spike sharply in recent weeks, now threatens these fragile shoots of economic recovery. As health professionals warn of the necessity of new restrictions over the winter, many sectors, including hospitality and tourism, will fear the return of limited operations. The Czech Tourism Union recently warned of catastrophic losses due to a continued lack of business for tourism-related companies, and if tough Covid restrictions do return this situation will only get worse.

Economic growth recorded this summer suggests that in the absence of further virus-related restrictions, the Czech economy may return relatively quickly to health. The downturn in manufacturing demonstrates that some difficulties will persist even in a return to normal circumstances. Yet the biggest threat to this tentative growth is now without doubt the rising case numbers being reported every day in the Czech Republic.