William Malcolm

Czech Economy Contracted By 2.4% In The First Quarter

The Czech economy contracted by 2.4 percent year on year in the first quarter of this year. This is an updated data announced today by the Czech Statistical Office. It originally reported a weaker decline in gross domestic product of 2.1 percent. Despite the deterioration, the decline is the slightest in the last four quarters, but more pronounced than in the first quarter last year. The quarter-on-quarter decrease remains at 0.3 percent.

According to statistics, the rate of household savings in the first quarter continued to reach above-average values. It was 23.7 percent. In the time series since 2005, it was higher only in the last quarter of last year, when it was 25 percent.

“Households’ total income grew by 3.5 percent year on year in the first quarter. On the other hand, their consumer spending fell by 3.4 percent, especially in connection with the continuing closure of part of the economy,” said Vladimír Kermiet, director of the CZSO national accounts department. However, quarter-on-quarter, household income fell by 2.9 percent. A more pronounced quarter-on-quarter decline was most evident in the first quarter of 2013.

The year-on-year decline in GDP in the first quarter was driven by a decline in household consumption and gross fixed capital formation, and foreign trade also had an adverse effect, Generali Investments analyst Radomír Jáč told ČTK. On the other hand, year-on-year growth was recorded in government consumption, while the creation of inventories also made a favorable contribution to GDP output. He reminded that according to updated data, GDP grew by three percent in 2019, when the original statistics worked with a growth of 2.2 percent. In 2020, the fall in GDP was 5.8 percent, originally last year’s decline in GDP was reported by 5.6 percent.

The second quarter will probably bring a more significant economic recovery, especially with regard to the rapid easing of anti-epidemic restrictions, added Komerční banka analyst Martin Gürtler. While all shops and some services reopened during May, in June the economy was functioning almost without restriction. In particular, an increase in household consumption can be expected, he added.

The average monthly income from employment reached CZK 36,212 in the 1st quarter and decreased by 3.8 percent in real terms compared to the previous quarter, by 1.7 percent year-on-year. The decline in employment was reflected in the cessation of production and the closure of some establishments due to the coronavirus pandemic. Statisticians pointed out that the money paid to employees in the Antivirus program does not represent wages according to their methodology.

Real consumption per capita increased slightly by 0.2 percent quarter on quarter and the savings rate fell by 1.3 percentage points. The investment rate of non-financial corporations decreased by 0.1 percentage point compared to the previous quarter.

The profit rate of non-financial corporations rose in the first quarter, but the investment rate fell. The profit rate reached 46.4 percent, which is 0.7 percentage points more than in the last quarter of last year and 3.4 points more than a year ago. The profit rate was affected by the subsidies received. The total wage costs of non-financial corporations fell by half a percent year on year. The investment rate fell by 0.1 percentage points compared to the previous quarter, reaching 26.7 percent. It decreased by 1.1 points year on year.