Czech banknotes, money, crown – illustration photo.
Prague – The Czech economy went into recession in the fourth quarter of last year, when the gross domestic product (GDP) fell by 0.4 percent compared to the previous quarter. The economy also showed a quarter-on-quarter decline in the third quarter. For the whole of last year, GDP increased by 2.4 percent, the Czech Statistical Office (ČSÚ) reported. According to analysts, the economy went into recession mainly due to the drop in household consumption. They expect a slight economic recovery from the second quarter of this year.
The balance sheet in the fourth quarter of last year was mainly negatively affected by falling expenditure on final household consumption. They decreased by 5.5 percent year-on-year. People bought less mainly durable goods. “Expenditures on food also decreased significantly, which decreased by more than ten percent year-on-year, but the decrease was also recorded for other items. Only expenditures for services increased,” said Vladimír Kermiet, director of the National Accounts Department of the CZSO.
GDP grew in every quarter last year in a year-on-year comparison, but growth gradually slowed down. In the first quarter it was by 4.7 percent, in the second by 3.5 percent, in the third by 1.5 percent and in the last by 0.2 percent.
“However, the accumulation of barriers in the form of a high rate of inflation, energy prices and other uncertainties gradually affected economic performance, and in the second half of the year the economy began to slow down. Although, fortunately, the negative scenarios of extreme energy prices or natural gas shortages were not confirmed, the economy contracted for the second time quarter-on-quarter behind us and we have entered a technical recession,” said Bohuslav Čížek, chief economist of the Union of Industry and Transport of the Czech Republic. According to him, however, the worst fears from the summer did not come true and the economy showed growth throughout the year.
The performance of the economy in the fourth quarter was slightly below the estimate of the Czech National Bank (ČNB), which assumed year-on-year growth of 0.5 percent. “Published data on economic activity confirm that the Czech economy went into a shallow recession in the second half of last year. Household consumption, which is affected by a deep drop in real incomes and deteriorating sentiment, fell more significantly in the fourth quarter compared to the CNB's expectations,” said the director of the section monetary CNB Petr Král. While the CNB predicted a drop in consumption of 3.3 percent, it actually decreased by 5.5 percent.
Analysts also see the drop in household consumption as the main reason for the recession. “The main sore point of the Czech economy continues to be household consumption, which has been declining for the fifth quarter in a row. And while the entire economy is not far from the pre-Covid 2019 performance, household consumption is almost eight percent below it,” said Patria Finance chief economist Jan Bureš.
“In this year's first quarter, we will in all probability record a drop in GDP, even in year-on-year terms,” said Generali Investments CEE Chief Economist Radomír Jáč. “In quarter-on-quarter terms, GDP performance could stabilize in the first quarter of this year, and GDP will return to quarter-on-quarter growth from the second quarter,” Jáč added. For the whole year, it expects GDP growth of no more than 0.5 percent.
ČNB expects economic recovery in the second half of the year. “The end of difficulties with the supply of materials and components for production during the year will gradually support export activity and net exports will significantly contribute to the start of the economy. At the turn of this year and next year, there will also be a revival of private consumption thanks to the end of high inflation and the restoration of real wage growth,” said Král . This year, the CNB expects GDP to fall by 0.3 percent, and next year GDP growth will exceed two percent.