The Czech economy experienced a 2.4 percent year-on-year growth in 2021, according to a revised estimate from the Czech Statistical Office. This is lower than the previous estimate of 2.5 percent made in January. The main drivers of the full-year growth were gross capital formation expenditure and external demand, while household consumption expenditure decreased by 0.9 percent, and government consumption expenditure increased by 0.7 percent. In the last quarter of 2021, GDP grew by 0.2 percent year-on-year, but it fell by 0.4 percent compared to the previous quarter.

The growth of gross fixed capital formation was 6.2 percent higher than in 2020, driven by investments in other buildings, structures, and transport equipment. However, the foreign trade balance ended in negative territory for the first time in 19 years, falling by CZK 187.6 billion year-on-year to minus 8.3 billion.

The decrease in household consumption was cited as the main reason for the shallow recession experienced by the Czech economy in the second half of 2021. In the fourth quarter, household final consumption expenditure fell by 2.8 percent quarter-on-quarter and 5.5 percent year-on-year. The decline in household consumption was more pronounced in the second half of the year due to high inflation in general and even higher inflation in sensitive items in the consumer basket, combined with a fall in real wages and consumer confidence.

The gradual slowing down of the Czech economy’s growth in 2021 was also observed, with growth of 4.7 percent in the first quarter, 3.5 percent in the second, 1.5 percent in the third, and 0.2 percent in the fourth quarter. Analyst Miroslav Novák stated that the decline in household consumption was the main reason for the shallow recession experienced by the economy.

The revised estimate from the Czech Statistical Office is a sign of the challenges faced by the Czech economy, such as high inflation, a decrease in consumer confidence, and a negative foreign trade balance. The government and policymakers may need to take action to address these issues and promote sustainable economic growth in the future.

Article by Prague Forum