GDP growth in the Czech Republic in the April to June quarter was revised upward to 4.7% from an already strong reading of 4.5%. That represented the third fastest growth among countries in the European Union, being bested by only Romania (at 4.8%) and Lithuania (5.7%).
Growth has been broad based, with both strong export growth as well vibrant domestic demand. Figures in the Czech Republic have continued to surprise to the upside, with economists consistently underestimating growth in the Central European nation.
“It was and it was not just for our team but for the whole market, the analysts, the Ministry of Finance, and the Czech National Bank had expected significantly slower growth. And also the monthly statistic did not show up such acceleration of the Czech economy. So, definitely it was the biggest surprise in many, many years.”
Last year’s growth came in at 2.4%, relatively strong within Europe, while growth in the first quarter was 4.0% versus the prior year. Following the strong growth in the second quarter, it appears likely that full year estimates for 2017 growth will need to be revised upward. Those estimates are currently at 3.2%.
The Czech Republic was a Communist state for 41 years until The Velvet Revolution in 1989 returned it towards the path of a liberal democracy. It joined the European Union in 2004 and despite have slightly lower living standards than other Western European nations, is rapidly closing the gap.
The unemployment rate in the country is now at a stunning 2.9%, among the lowest in the world and leading to some fears that the economy could become overheated and lead to strong inflation. Inflation in the Czech Republic is currently 2.5% per year, high by the standards of the current global economy, but not so high it has yet caused problems in Prague.
Commenting on the strong growth, Helena Horsak, Chief Economist at Raiffeisbank said, “I think it’s a combination of all domestic and external positive factors because according to the Czech Statistical Office the Czech economy accelerated thanks to private consumption and investment but also, as we know, exports also went significantly up.”
She added, when asked about inflation fears, “The imaginary ceiling on growth has not yet been reached in my view. We can see that wage growth is not accelerating so much to reveal over heating in the Czech economy. In my view, more important than the figure itself is the acceleration of private investment in the Czech economy.”
Her forecast for growth in 2017 in the Czech Republic now sits at 3.5%.