The Czech economy performed beyond expectations at the start of the year. Revised figures by the Czech Statistics Office show that in the first three months of 2014, gross domestic product grew by 2.9 percent year-on-year, the highest rate since just before the start of the economic crisis six years ago. I spoke to analyst Jan Bureš of the ERA bank about the latest figures.
“The figures confirm that the Czech economy was in the process of a broad-based recovery at the beginning of the year. A closer look at the details reveals that the recovery is not limited to net exports, which is what we saw in past quarters. Domestic consumption has also recovered slightly and, more importantly, investment is doing better that in the past.”
Corporate and household spending has long been depressed; what has brought about the change?
“I would not overestimate the recovery. I’m happy to see that but I think that investment recovery was slightly inflated at the beginning of the year as companies were probably spending on cars and other things in advance to avoid price hikes caused by the depreciation of the Czech crown. So we might see a slowdown of the investment activity later in the year.
“But overall, negative tendencies in investment stopped towards the end of 2013 mainly because investments had been declining for many quarters both in private and public sector. In the private sector, the investment is still declining but the private sector – especially in areas with high capital utilization such as the car industry – we are seeing a moderate recovery which I hope will continue this year as well.”
Are there any risk factors that might undermine the ongoing recovery?
“I think at this stage, these are mostly external factors such as the recovery in the Eurozone which is very much relies on external demand. The greatest risk that I see here is potential problems in big Asian economies like China. A more dramatic slowdown on big Asian markets could cause problems for big European economies, and the Czech economy as well.”
“The labour market lags behind in the economic cycle. So far, we have seen a very moderate recovery in investment activities but no significant improvement in hiring, and employers have little motivation to increase wages as there are still many unemployed waiting to get jobs.
“I therefore believe we might see a certain improvement in the labour market but it will take time. I think we could see a more substantial decline in unemployment at the start of 2015 if the recovery continues as we now expect.”