Surging Czech growth seen based on solid foundations

01-10-2015

Talks of a Czech tiger economy have just been given some extra impetus with a positive revision in the already strong growth figures for the second quarter. But other big cat and miracle European economies have tanked in the recent past, so how solid are the Czech foundations?

Photo: Pong, FreeDigitalPhotos.netPhoto: Pong, FreeDigitalPhotos.net The Czech Republic’s economy is surging ahead even faster than previously predicted. Confirmation of that fact came with an upgrade in the country’s year-on-year growth rate to 4.6 percent in the second quarter. That’s up from the previous estimate of 4.4 percent. It’s the highest growth figure for the Czech economy since the end of 2007.

The previous figures had already put the Czech Republic as one of Europe’s fastest growing economies in terms of year-on-year growth, trailing only Malta with 4.6 percent growth.

And the Czech Statistical Office delivered other figures which bolstered the upbeat message on Wednesday. Company profitability is up, corporate investments are climbing, average wages are up in real terms, by 2.5 percent, and households are managing to save more money than before.

Over the longer term, the Czech figures might not look so exceptional. Quarterly year-on-year growth rates have ranged over the last 10 years between highs approaching 7.0 percent and lows of around 5.5 percent during the depths of the recent recession.

I asked the chief economist of Era Banka, Jan Bureš, what he made of the latest growth figures and if they could be maintained or bettered.

Jan Bureš, photo: Tomáš AdamecJan Bureš, photo: Tomáš Adamec “Looking at the figures, it is worth mentioning that the growth is broad based. That means that it is not just driven by one factor, such as in the past it used to be export-driven growth. These days it is more balanced. Looking at the contributions, we see both positive contributions coming from the domestic consumption of households, from the government sector, and we have a very growth in investments and meanwhile the export-oriented sector is still doing well. So almost all the sectors are still contributing positively to the GDP dynamic and that is pretty positive.”

And can the Czech Republic keep this sort of momentum up in the next quarters or years?

“I believe that what is going to change is that growth is going to rely more on household consumption. Maybe we will see a slightly more negative contribution from the export oriented sector as the imports might grow a bit faster than exports. But overall I believe that we will be able to keep solid dynamics in GDP growth. Maybe not a 4.0 percent dynamic in 2016, I estimate the dynamic at around 3.0 percent, but overall the shape of the Czech economy should remain in good condition.”

01-10-2015