The Czech economy experienced a downturn of 0.7% in the third quarter of this year, as per the refined estimate released by the Czech Statistical Office (CSO). The initial estimate had indicated a decrease of 0.6%, signaling a deeper contraction than initially projected. The gross domestic product (GDP) also recorded a 0.5% decline quarter on quarter.

The decline in GDP is primarily attributed to a reduction in household final consumption expenditure and a decrease in inventories. Statisticians highlight that while the final consumption expenditure of government institutions, the creation of gross fixed capital, and foreign demand had a positive impact, changes in inventory status and foreign demand were the main factors contributing to the GDP decline in the third quarter.

Expenditure on final consumption saw a marginal growth of 0.2% quarter on quarter but experienced a more pronounced decline of 0.4% year on year. Notably, household final consumption expenditure decreased by 0.3% quarter on quarter and 2.3% on a yearly basis. In contrast, government final consumption expenditure increased by 1.2% quarter on quarter and 3.9% year on year.

Gross added value (GVA), reflecting the difference between goods and services production and production costs, also witnessed a decline. It decreased by 0.1% year on year and 0.4% quarter on quarter. This marks the third consecutive quarter of economic decline, with the rate of contraction deepening, according to analyst Citfin Tomáš Volf.

The challenging performance of the Czech economy is further exacerbated by the impact of high inflation, which continues to erode the purchasing power of the population and diminish their savings. Consumer spending, now nine percent lower than pre-Covid levels, has yet to show signs of improvement. The anticipation surrounding the dissolution of Covid savings has not materialized as expected, contributing to unevenly distributed economic challenges across the population, as noted by Petr Dufek, Chief Economist of Creditas Bank.

Article by Prague Forum