The Czech stats office upped its Q2 GDP growth estimate to 2.6% y/y, up from a flashed 2.5% y/y, according to GDP breakdown released today. Growth slowed from 3.0% y/y in Q1. The quarterly GDP growth was confirmed at 0.9% q/q.
Detailed data showed economic expansion continued on account of final consumption and net exports that contributed. In particular, household consumption rose by 2.2% y/y in Q2, slowing from 2.7% y/y in Q1. Government consumption growth held at 2.5% y/y so the total contribution from final consumption to GDP growth was of 1.5pps. Export growth was almost unchanged at 5.7% y/y in Q2, while import growth slowed more notably to 3.1% y/y so net exports added 2.3pps to the annual growth. By contrast, the GCF shifted to 4.5% y/y decline in Apr-Jun from 2.1% growth the quarter before as here the figure is affected by a drop in construction investment and high comparison base in Q2 2015 when works on EU-financed projected were very intense with the end of 2007-2013 programming period. Inventories increased slightly on the back of production activities, i.e. to inventories of materials and work in progress.
GVA growth was of even stronger 2.7% y/y and was up by 0.9% in quarterly terms. All sectors except construction reported higher GVA on the year. The most vigorous growth was seen in automotive industry, the GVA increased by 1.3% q/q, and by 4.8% y/y. Among the services sectors, in trade, transport, and accommodation the GVA went up by 2.5 y/y, in real estate services by 2.1% y/y, and in professional, scientific and technical activities by 3.4% y/y. On the contrary, GVA in construction fell by 5.5% y/y.
Looking forward, the outlook for household demand remains benign due to the continuous increase of employment and the stable real income gains seen this year. Government consumption will also increase as here the stimulus could even prove higher than expected with the upcoming 2017 general election. For external demand, uncertainty remains especially as the Brexit vote has affected sentiment which would reflect in lower growth of most EU countries and respectively the Czech economy. This was the main reason for the finance ministry to cut its 2016 GDP growth forecast to 2.2% and the one for 2017 to 2.4%. By contrast, the CNB does not expect Brexit impact to be fell already this year and it has actually raised its 2016 GDP growth forecast to 2.4%, from previous 2.3%. Still, the CNB cut GDP growth projection by 0.4pps to 3.0% exactly because of higher external uncertainty.
In regard to monetary policy, the CNB’s latest forecast assumes GDP growth to decelerate to 2.1% y/y in Q2 and a better print would speak against the need to use the fx tool after mid-2017, in our view.