Strong Czech economic growth surprises experts

Photo: Michal Polášek

Czech economic growth was one of the strongest in Europe in the second quarter, confounding the experts who had bet on a weaker performance. But the latest figures are fuelling questions whether the economy is at its limits and could soon start to lose momentum.

Photo: Michal Polášek
A bronze medal for economic growth behind the European Union’s best performers, Romania and Lithuania. That is how some are describing the surprisingly strong growth figures for the Czech Republic in the second quarter of this year.

Czech year-on-year growth from April to June came to 4.5 percent, slightly eclipsed by the surging 5.7 of Romania and the 4.8 percent of Lithuania, the gold and silver winners of the EU-28 respectively.

Within central Europe, the Czechs had the fastest growing economy, just outpacing Poland’ s 4.4 percent, Hungary’s 3.5 percent, and Slovakia’s 3.1 percent.

What’s more, the Czech Statistical Office says the growth is broad based, stemming from vigorous domestic demand as well as exports and spread across service sectors as well as manufacturing. Low and falling unemployment means that many Czechs are spending freely with fewer worries about what could be around the corner.

The Czech figures are around a third higher than most domestic economists were banking on and have had many rushing to hike up their forecasts for the full year. We asked the chief economist of the Czech branch of Raiffeisenbank, Helena Horská, how surprising the figures were:

"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."

Helena Horská, photo: archive of Helena Horská
And what’s the main the main factor fuelling that growth, is it domestic factors, household spending, or exports?

"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."

The big question now is whether the Czech economy operating near its upper limits?

"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."

According to Horská, investment could help to push the Czech economy to higher productivity and a higher performance that has been lacking in recent years. She’s now expecting Czech economic growth for the whole of 2017 to come in at 3.5 percent.