Czech Economy Contracts by 0.4% in Q1 2023, Ending Growth Streak

The Czech economy contracted by 0.4 percent in the first quarter of this year compared to the previous year, according to a revised estimate by the Czech Statistical Office (ČSÚ). In early May, statisticians had predicted a decline of 0.2 percent. This marks the first annual decline in the economy since the first quarter of 2021. Compared to the previous quarter, the gross domestic product (GDP) stagnated in the first three months of this year, which is worse than the initial estimate of 0.1 percent quarterly growth.

The year-on-year decline in GDP was mainly influenced by household final consumption expenditure and changes in inventories. On the positive side, the government’s final consumption expenditure and foreign demand had a favorable impact. The Czech economy had entered a technical recession with consecutive quarterly declines in the previous two quarters, but the contraction halted in the first quarter of this year. However, contrary to the initial estimate by ČSÚ, the economy did not transition into growth.

The main factors affecting the quarterly GDP development in the first quarter were increasing foreign demand and government final consumption expenditure. On the negative side, household final consumption expenditure and gross capital formation had a negative impact, according to Vladimir Kermiet, the director of the National Accounts Department at ČSÚ.

Household expenditure on final consumption decreased by 0.3 percent every quarter and by 3.2 percent year-on-year. Expressly, spending on the purchase of short-term consumer goods and services declined. Year-on-year, household final consumption expenditure decreased by 6.4 percent. Meanwhile, government final consumption expenditure increased by 1.9 percent quarterly and by 3.9 percent year-on-year.

Gross value added, which represents the difference between the production of goods and services and the production costs, increased by 0.8 percent quarterly and 1.1 percent year-on-year. The sectors that contributed the most to quarterly growth were the manufacturing industry, trade, transportation, accommodation and food service, and information and communication activities. The financial and insurance sectors had weaker results.

In terms of year-on-year growth in gross value added, the industry, real estate activities, and public administration, education, healthcare, and social work sectors had the most significant positive contributions. Construction, trade, transportation, accommodation, and food service activities had a negative impact.

The trade balance reached a surplus of CZK 93.7 billion, an increase of CZK 92.7 billion compared to the previous year. Export, particularly electrical equipment, and motor vehicles, increased by 9.5 percent, while imports rose by 3.3 percent.

According to ČSÚ data, employment in the Czech Republic grew by 0.4 percent in the first quarter compared to the previous quarter and was 1.4 percent higher year-on-year.