Czech economy still booming but how long can growth be sustained?

Illustrative photo: Jaroslav Mach

After strong growth last year, the Czech Republic’s economy continues to thrive. Indeed, according to freshly released preliminary figures, gross domestic product expanded by 4.5 percent in the first quarter. This was down from the 5.5 percent recorded in the final quarter of last year but is still a notable result. I discussed the new data with economist Jan Bureš of Patria Finance.

Jan Bureš | Photo: Tomáš Adamec,  Czech Radio
“Growth of 4.5 percent is slightly less than I expected. But still it’s within the range of the expectations that we’ve seen on the market.

“It’s still pretty solid growth, although a slowdown from what we saw in the second half of 2017.

“We don’t know much about the structure yet but I believe, and partly the Czech Statistical Office confirmed this in a statement, that it was driven mainly by solid growth in domestic demand.”

Is the low unemployment rate a factor in this?

“Definitely low unemployment and record-high employment levels play a significant role in driving the economy towards faster growth.

“The combination of growing employment and accelerating wages helps on one hand households to consume more.

“On the other hand, it naturally stimulates investments in the corporate sector. As companies do not have enough labour force available on the market, they need to invest more to be able to grow in the future.”

This was a slight slowdown from the previous quarter but was still high growth. In your view, can these kinds of levels of growth be sustained in the Czech economy?

“In my view, the natural growth rate is lower. It’s around 3 percent.

Illustrative photo: Jaroslav Mach
“But looking ahead one year, I believe that we can grow above the potential.

“We are at the peak of the economic cycle, and I believe that the fast consumption and investment growth will keep the economy growing above the potential rate.”

Are there any grey clouds on the horizon, or already in the sky, for the Czech economy?

“The Czech economy is a small, open economy and always there can be a big impact from abroad.

“So all the risks associated with the Eurozone are also pretty serious for the Czech economy.

“Nevertheless, for now, looking ahead one year, I do not see a major threat for the Czech economy coming from abroad.

“And looking at home, there are no major imbalances that should threaten the growth in the nearer term.”