Czech consumer confidence at lowest level since records began

According to figures released by the Czech Statistical Office (CZSO) today, consumer confidence in Czechia has hit its lowest level since the beginning of records, in January 2005.

The CZSO’s consumer confidence indicator, designed to display the levels of confidence and optimism that consumers have in the economy, declined by 0.8 points in October, to 71.9. This marks a huge decline from earlier in 2022, when it had reached a calendar-year high of 91.7 in February, and from October 2021, when it stood at 101.3.

The overall confidence indicator also fell. It declined by 0.3 points from the month-earlier level, to 89.8 points. It dropped below 90 points for the first time since March 2021, after having declined for five consecutive months.

The business confidence indicator decreased by 0.2 points, to 93.4 in October. Earlier this year, it had reached a high of 107 points in May. Since then, it has been declining sharply at a rate of about 3 index points month on month, and October marks the first month where this trend has halted.

In October 2021 all three confidence indicators had been at levels higher than now.

Silvie Vyplasilová of the CZSO's economic research department, said that the number of households concerned about "the deterioration of their own financial situation are the highest in history." People are also highly concerned "about the development of the overall economic situation and about the increase in unemployment," Vyplasilová said about the numbers.

Confidence in industry also declined in October – from 93.6 points in September to 91.4 this month. Similar to business confidence, it registered an annual high in May, with 106.7 points, and has been on a sharp fall since.

Construction confidence has also decreased from levels seen earlier this year. The construction confidence indicator recorded a high of 128.9 points in February 2022, before falling to 110.2 in October. 

Retail trade also fell from higher scores registered in the first quarter of the year (105 points in January) to 99.3 in October. It is also substantially lower than its year-earlier level (106 points), while also registering its highest score since July this year.

Rising inflation is likely the main reason for lower confidence across the board. Inflation in September registered its highest level since late 1993, at 18 percent. Prices of goods and services also increased last month on a year-on-year basis, at 20.7 percent and 13.7 percent respectively. Rising prices of everyday items such as meat (23.6 percent year on year) and butter (51 percent) also dented consumer confidence.

A sharp increase in rental inflation (at about 20 to 30 percent in Prague last month) paired with increased housing demand will also have reduced consumers' confidence.

A decrease in real wages by almost 10 percent in the second quarter of this year will also have contributed to weakening consumer confidence. The slight uptick in Czech unemployment, reaching a seven-month high of 3.5 percent in September, may also be one cause of economic worries in the country.

"Confidence between entrepreneurs and households continues to decrease, which, however, is not too much of a surprise given the economic uncertainties. The further escalation of the war in Ukraine was probably taken into account in the weaker confidence among households," noted Czech Banking Association analyst Jakub Seidler.

The Czech economy may show a quarter-on-quarter drop in GDP in the second half of the year, explains Generali Investments analyst Radomír Jáč, which would prompt a technical recession and worsen the economic outlook.

With the Czech National Bank predicting a return to relatively normal inflation levels only by the end of 2023 and the Russia-Ukraine crisis continuing, economic confidence may remain low in the months ahead.