Czech economy likely to decelerate slightly in 2019, GDP growth to return to potential in 2020

Czech economy grew 1 percent quarterly in the fourth quarter, and came in at 2.9 percent year-on-year, as it was still being driven by both domestic and foreign demand. Household consumption and private investment were the most significant contributors to the economic growth in 2018. Tight labor market and positive confidence of households drove household consumption, whereas private investment was impacted by the lack of new available employees. Meanwhile, next exports contributed negatively in 2018, owing to high import levels for consumption and investment purposes and the deceleration in the euro area.

According to an Erste Group Research report, the Czech economy is likely to grow 2.5 percent in 2019. In spite of a slight deceleration compared to 2018, the economic story is unlikely to change much. Domestic demand is expected to stay strong, as the labor market is still tight, and thus companies will continue investing in the higher robotization of plants in 2019. Nevertheless, the majority of those investments occurred in 2017-2018, suggesting much lower investment growth in 2019.

“Moreover, we expect low GDP growth in Germany in 2H18 to negatively affect GDP growth in the Czech economy in 1H19. In 2020, GDP growth will return to potential, mainly due to improved foreign demand”, added Erste Group Research.