Growth in the Czech economy slowed to 2.5% in the third quarter, according to refined estimates.
Household consumption remains the main growth driver
GDP structure reveals that growth was driven mainly by household consumption similarly as in previous quarters. However, annual growth slowed further from 2.9% in 2Q to 2.3%. Compared to 3-4% growth in 2015-2018, household consumption started to slow down and 3Q growth fell also below the CNB’s expectation of 2.9%.
Investment, which saw a surprise and noticeable decline last quarter, remained subdued in Q3. In fact, it’s falling slightly year-on-year, driven mainly by a 2.6% YoY decline in ICT and machinery investment. However, real estate investment accelerated to 7% YoY. Government consumption saw a solid growth of 3.3% in the third quarter, which is above our and the CNB’s expectations.
Net exports contribute to growth due to import slowdown
Due to a slowdown in investments, which are very import-intensive, we also see an import slowdown (1% YoY in 3Q vs. 2% in the previous two quarters), which in turn increases the contribution of net exports to GDP. The same effect was observed in the last quarter when net exports contributed 0.7 percentage to YoY growth as in 3Q. However, export growth is also gradually weakening, reflecting weaker external demand.
Slowdown ahead due to foreign development
For the whole year, Czech economic growth should be around 2.5% after 3% in 2018. Although foreign risks seems to have moderated in recent weeks, they’re still elevated. The positive news is that the German economy avoided a technical recession in the third quarter, with a modest QoQ growth of 0.1%, while the market expected a slightly negative figure. But the development abroad remains fragile and it will be crucial for the growth of the domestic economy next year. Right now, we expect the domestic economy to slow further to 2% next year.