Czech Republic experiences worst economy fall in its history, mainly thanks to low foreign demand

Photo: Gerd Altmann, Pixabay / CC0

The Czech economy experienced a year-on-year fall of 11 percent in the second quarter of 2020, according to data released by the Czech Statistics Agency. The fall also amounted to some 8.7 percent when compared to the previous quarter of the year. The statistic is the worst in the history of the independent Czech Republic and was mainly caused by the fall in foreign demand.

The fall was slightly higher than Czech Statistics Agency estimates, which expected a year-on-year fall of 10.7 percent and a quarter-on-quarter of 8.4 percent. For the Czech export focused economy, the fall in foreign demand alone was responsible for shrinking 7.9 percent of the Czech economy. Lower household expenditure added a further 2 percentage points. On the other hand, larger government expenditure had a slightly positive effect on the economy, according to statisticians.

Gross fixed capital formation, a component of GDP expenditure that shows how much of the new value added in the economy is invested rather than consumed, increased by 0.9 percent quarter-on-quarter, but fell by 4.8 percent in year-on-year terms. Investments in machinery and transport equipment recorded the largest decline, with only investments in construction rising.

The country’s foreign trade balance fell by CZK 56.5 billion in year-on-year terms to CZK 44.1 billion – the lowest level since 2012. Meanwhile, the exports of goods and services fell by 23.3 percent, with imports down by 18.2 percent. The fall in imports was largely down to a decrease in oil and gas supply, as well as by lower imports of basic metals, machines and vital equipment for the automobile industry, statisticians told the Czech News Agency.

Meanwhile, the state deficit grew by nearly CZK 25 billion in August to CZK 230.3 billion, the Ministry of Finance announced on Tuesday. The current deficit is significantly higher than the CZK 89.6 billion recorded in August 2009 during the height of the global financial crisis and is the highest in the history of the state. In July, the Chamber of Deputies approved a deficit fall of CZK 500 billion.