GDP roughly in line with the CNB forecast in 2021 Q4

The CNB comments on the GDP figures for 2021 Q4

According to the CZSO’s estimate released today, gross domestic product adjusted for price, seasonal and calendar effects rose by 3.6% year on year in 2021 Q4. In quarter-on-quarter terms, economic activity increased by 0.9%. The year-on-year growth of the Czech economy in 2021 Q4 was 0.1 percentage point higher than the CNB’s forecast had expected. In 2021 as a whole, domestic economic activity rose by 3.3%.

The released data confirm that the recovery of the Czech economy continued at the close of last year. Annual GDP growth was driven solely by domestic demand, above all a rise in inventories and final consumption expenditure of households. Although household consumption increased more slowly than forecasted, its growth remained robust, reflecting the fact that services and trade were almost unrestricted by the pandemic at the end of last year. An improving labour market situation and probably also a gradual release of part of the forced savings built up during previous shutdowns of the economy had the same effect. Government consumption was broadly flat year on year. The deviation from the forecast, which had expected it to continue growing, was due to a higher-than-expected government consumption deflator. Gross capital formation was markedly above the forecast, its buoyant growth primarily reflecting an unexpectedly strong contribution of change in inventories. The latter was still largely due to forced stockpiling of unfinished production owing to disruptions to international production chains and related logistics. Fixed capital investment rose moderately in Q4 and was slightly lower than forecasted. The persisting problems in global production and supply chains led to a deepening of the year-on-year decline in exports of goods and services. By contrast, imports continued to grow, owing to solid domestic demand growth. As a result, the negative contribution of net exports to GDP growth was deeper than forecasted.

constant prices, seasonally adjusted

According to the CNB’s winter forecast, the Czech economy will continue to recover from the pandemic this year. Economic growth will continue to be driven largely by household consumption, although the initially high year-on-year growth of the latter will be due to last year’s low base. Households’ consumption expenditure will be funded by solid growth in disposable income and spending of the forced savings accumulated during the shutdowns of the economy. However, growth in consumer demand will be dampened by strong inflation and increased interest rates. Growth in corporate investment will be motivated by continued growth in external demand, a shortage of workers on the domestic labour market and increasing wage costs. Government investment will also record growth, supported by absorption of EU funds. The problems in global production and supply chains will persist this year, resulting in higher additions to inventories. As international trade gets going again, export growth will recover gradually and net exports will start to contribute to growth again. According to the central bank’s winter forecast, the Czech economy will grow by roughly 3% overall this year, similarly to last year. Economic activity should thus reach the pre-pandemic level by the end of this year.

Uncertainty regarding future global and domestic economic developments is increasing in view of the impacts of the current war in Ukraine. The Czech National Bank has been monitoring this situation in detail and assessing it on a continuous basis. The direct impact on Czech economic growth stemming from the country’s trade links with Russia and Ukraine will be limited. However, inflationary impacts of the conflict can be expected, mainly through higher prices of oil, natural gas and other energy and commodity items. The koruna exchange rate, which is now weaker than assumed in the winter forecast, will affect the domestic price level in the same direction. Together with uncertainty regarding the future development of the situation in Eastern Europe and its global economic impacts, this could adversely affect the consumption of Czech households and investment by domestic firms.

New information and outlooks for the world and domestic economies, commodities, exchange rates etc. will be taken into account in an internal update to the CNB’s winter forecast, to be discussed by the Bank Board along with other documents and analyses at its monetary policy meeting on 31 March 2022.

Petr Král, Executive Director, Monetary Department