Czech economy faces first-quarter decline as household consumption slows

New data from the Czech Statistical Office shows that the Czech economy contracted by 0.4 percent year on year in the first quarter of 2023. This is the second consecutive quarter of decline, meaning that Czechia is in a technical recession.

This is a slightly more pronounced decrease than statisticians expected, with estimates of 0.1 or 0.2 percent previously published. This new data is also in stark contrast to the first quarter of 2022 when GDP had grown 4.6 percent year on year.

High inflation (currently at around 13 percent) and low household consumption – declining by 3.2 percent year on year – influenced the decline in GDP growth. On the other hand, foreign demand had a positive effect; the foreign trade balance reached CZK 93.7 billion, almost doubling year on year. Gross value added rose by 0.8 percent quarter on quarter and 1.1 percent on an annual basis.

The real estate (4.5 percent growth year on year), industry (1.6 percent), and public administration (1.1 percent) sectors contributed the most to GDP. The construction industry (3.8 percent decline) and hospitality sector (down 2.8 percent ) had a negative impact on Czech GDP.

Exports grew by 2.5 percent quarter on quarter and by almost 10 percent annually, as Czechia’s sizable automotive sector picked up steam following an uptick in demand. Imports also rose year on year by 3.3 percent.

Raiffeisenbank senior analyst David Vagenknecht said that he expects the Czech economy to grow slowly in 2023, reaching about 0.5 percent expansion by the end of the year. Lower projected inflation – expected to reach single digits in the second half of the year – should spur an increase in household consumption, he added.

According to Generali Investments analyst Radomír Jáč, falling energy prices should also have a positive effect on household consumption, which should in turn positively affect the average real wage in Czechia. Disposable income and spending power should both increase, as Czech households will hope for a brighter rest of 2023.