The Czech economy unexpectedly contracted on a quarterly basis in the July-September period, preliminary statistics office data showed on Tuesday, as a drop in foreign demand pulled the country back towards recession.
Czech gross domestic product declined 0.3% in the third quarter, missing a median expectation that it would stagnate and contracting by more than all but the most pessimistic analyst had forecast in a Reuters poll.
On a year-on-year basis, the economy shrank 0.6%, deeper than the median forecast for a 0.3% drop.
The economy had pulled out of a recession in the first half of 2023 but is struggling to recover from last year’s surge in inflation, with consumer activity still weak and firms reporting shrinking order books from domestic and foreign clients.
The statistics office did not break down the preliminary data but said foreign demand negatively impacted the quarterly result, while domestic demand stagnated.
The Czech data is the first insight into third-quarter growth in central Europe, where Hungary, Poland and others have also felt the impact of soaring prices for energy, food and other goods and are slow to recover.
“This weakness in the (Czech) economy also increases the likelihood that the central bank will start an easing cycle at its meeting later this week,” said Nicholas Farr, an emerging Europe economist at Capital Economics, adding that a full-year contraction was also possible.
The Czech National Bank will meet on Thursday with analysts split before Tuesday’s data over whether policymakers will deliver a first interest rate cut after hiking rates to more than two-decade highs in 2021-2022.
Although inflation eased to below 7% in September after peaking at 18% last year, it has hammered real wages, which have fallen for seven straight quarters and dragged on consumer activity.
Purchasing managers’ readings of manufacturing sentiment also remain in contraction territory, while the key car sector saw a year-on-year drop in output in September as it works through supply issues.
“The domestic economy remains on the edge of recession and is the only one in the European Union to not yet reach its pre-pandemic GDP level from 2019,” said Jakub Seidler, chief economist with the Czech Banking Association.
He said a mild recession was possible and that next year’s outlook for growth will also shift lower, especially with weakness in main export market Germany and the effects of the Czech government’s deficit-cutting measures.
The European Committee of Social Rights (ECSR) has found violations of the right to equal pay and the right to equal opportunities in the workplace in 14 out of 15 countries which apply the European Social Charter’s collective complaints procedure: Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Finland, France, Greece, Ireland, Italy, the Netherlands, Norway, Portugal and Slovenia.
Only Sweden was found to be compliant with the Charter.
“The gender pay gap is unacceptable in modern societies, yet it continues to be one of the main obstacles to achieving real equality. European governments must urgently step up efforts to ensure equal opportunities in the workplace. And more countries should use the Council of Europe’s Social Charter as one means of reaching that goal,” said Marija Pejčinović Burić, Secretary General of the Council of Europe.
Complaints to the ECSR, which monitors the implementation of the Charter, were lodged by the international NGO University Women of Europe (UWE).
While the ECSR found that all 15 countries concerned had satisfactory legislation recognizing the right to equal pay for equal work, it found various violations – bar Sweden – primarily due to insufficient progress in reducing the gender pay gap, but in some cases also due to lack of pay transparency in the labour market, ineffective legal remedies and the insufficient powers and resources of national gender equality bodies.
Moreover, despite quota arrangements and other measures, women also continue to be under-represented in decision-making positions within private companies. The ECSR noted that the gender pay gap had narrowed in some countries, but progress was insufficient.
The ECSR monitors compliance with the European Social Charter under two complementary mechanisms: through collective complaints lodged by the social partners and other non-governmental organizations (collective complaints procedure), and through national reports drawn up by Contracting Parties.
According to the Charter, the right to equal pay must be guaranteed in law. The ECSR has identified in particular the following obligations on participating States:
– To recognize the right to equal pay for equal work or work of equal value in their legislation;
– To ensure access to effective remedies for victims of pay discrimination;
– To ensure and guarantee pay transparency and enable pay comparisons;
– To maintain effective equality bodies and relevant institutions in order to ensure equal pay in practice.
Czech’s economy is set to suffer a strong hit from the COVID-19 outbreak in 2020, as external demand drops and lockdown measures disrupt economic activity.
Real GDP is expected to gradually recover in 2021, although it is unlikely to rebound to 2019 levels. Inflation is expected to decrease amid falling oil prices and demand. In parallel, public finances are forecast to deteriorate significantly, as the government’s measures provide support against the economic impact of the pandemic.
In 2020, the COVID-19 pandemic is expected to lead to a sharp decline in GDP growth of -6,2%.
The Czech Republic implemented lockdown measures early and will likely lift them progressively starting in early May, considering the current evolution of the pandemic. Thus, the output is estimated to shrink by over 9% in the second quarter of 2020.
The economy should then gradually recover from the third quarter onwards, but the impact on sectors such as transport, hospitality, and tourism may last longer. In 2021, GDP is expected to grow by 5%, and recover the loss only partially. The upturn is forecast to be mainly driven by an increase in private consumption and investment.
Unemployment is expected to be impacted as well, reaching around 5%, but its increase should be cushioned by the government’s measures, a previously tight labour market, and a low share of temporary contracts.
Trade is set to be impacted strongly due to the structure of Czechia’s exports. The highly cyclical nature of some sectors (e.g. the automotive sector) will likely cause a drop in the trade balance of goods in 2020, before gradually recovering in 2021.
The government has pledged more than 1 trillion crowns ($40.24 billion) mostly in loan guarantees and direct aid for affected workers and firms. It is planning a record budget deficit of 300 billion crowns in 2020, more than seven times its original plan.
The European Commission called it a “recession of historic proportions” today in its spring forecast, which also warned EU unemployment could climb to 9 percent this year.
Things could get still worse depending on how the pandemic evolves, the Brussels executive said. The financial crisis contracted the eurozone economy by 4.5 percent in 2009 and left around 10 percent of workers without a job.