Households Drive Czech Second-Quarter Growth as Investment Drops

  • Economic growth helps boost state budget to record surpluses
  • Rising wages support central bank’s plan to exit koruna cap

Czech economic growth slowed less than analysts expected in the second quarter as rising household spending and exports offset a decline in investment.

Gross domestic product expanded 2.5 percent from a year earlier, after rising 3 percent in the first quarter, the Czech Statistics Office said in a preliminary estimate on Tuesday. The median forecast of 14 economists surveyed by Bloomberg was for 2.3 percent growth. GDP grew 0.9 percent compared with the previous quarter, exceeding the 0.6 percent median projection. The statistics office in Prague will release GDP breakdown on Sept. 2.

The expansion supports the central bank’s plan to abandon its unconventional monetary stimulus, carried out through a limit on koruna appreciation, around the middle of next year. The growing economy is also helping to boost the government’s budget to record surpluses this year. Private consumption and demand from abroad are the main drivers of the Czech economy, the statistics office said, after a drop in European Union development funding reduced state investment in roads and other infrastructure projects.

“Households are not afraid to spend, encouraged by a favorable situation in the labor market, with the unemployment rate holding at record lows and wage growth accelerating,” said Viktor Zeisel, an economist at Komercni Banka AS in Prague, said by e-mail. “We will probably have to revise our 2.1 percent full-year growth estimate upwards.”

The exchange-rate limit, set in 2013 at around 27 per euro to avert deflation, has made exports from the ex-communist nation of 10.5 million more competitive and helped reduce unemployment to one of the lowest levels in the EU. The koruna traded little changed at 27.02 against the euro as of 11:14 a.m. in Prague.

A labor shortage is forcing companies to increase salaries, which is fueling domestic demand. Earlier this month, the Czech National Bank said rising wages would push inflation toward its 2 percent target in the second quarter of next year, sooner than it previously projected.

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