Page 7 - bne IntelliNews monthly magazine December 2023

bne December 2023 Companies & Markets I 7
Czechia in last place as rest of the EU starts to recover
Ben Aris in Berlin
Czechia is the only EU country not to have recovered its pre-pandemic level of output and its economy is teetering on the edge of another recession, economic consultancies Oxford Economics and Capital Economics warned in their recent reports.
Gross domestic product decreased in the third quarter by 0.3% quarter-on-quarter and by 0.6% year-on-year. The third quarter figures follow a stagnant performance q/q and a 0.6% decline y/y in the second quarter. This means that over the past two quarters the economy has shrunk, putting it once again technically in a recession.
“The Czech Republic is the only EU economy yet to recover
to its pre-pandemic size. That won't happen this year, as we expect the economy to stagnate before resuming a lacklustre recovery in 2024, remaining at the bottom of the EU econo- mies' table,” Tomas Dvorak, an analyst with Oxford Econom- ics, said in the note. “The economic structure and its exposure to the recent shocks still reverberating through the economy make Czech Republic the "sick man of Europe", even more so than Germany.”
All EU economies except Czechia have clawed back all the ground they lost during the two-year shut down caused by the coronacrisis. It now remains the sole laggard, with GDP still over 1% below its end-2019 peak. Although revisions to the volatile national accounts data of recent years might yet shake up the standings, the Czech economy is visibly struggling to make a convincing recovery since the pandemic.
The Czech economy has been harder hit than most by the economic dislocations and soaring inflation caused by first the polycrisis that followed the coronavirus pandemic, which was then exacerbated by the economic repercussions of Russia's brutal invasion of Ukraine. Both private consumption and fixed investment remain below pre-pandemic levels.
“The collapse in consumption is particularly noteworthy, as six quarterly contractions – some of them the largest on record, excluding during the pandemic lockdowns – through to the first quarter 2023 have pushed private consumption back to 2015 levels in real terms, a cumulative 9% peak-to-trough decline. Household spending then only eked out 0.2% q/q growth in the second quarter, hardly a start of a swift rebound. High-frequency data point to another possible contraction in the third quarter,” says Dvorak.
Czechia fell into recession over the second half of last year, and GDP has broadly stagnated over the first half of this year.
The hit to households’ real incomes from high inflation and interest rates has weighed particularly heavily on house-
hold spending, which fell by 4.5% y/y in the second quarter, according to Capital Economics. There is some good news too, though Czechia continues to lag behind its regional peers.
“The monthly activity data for the third quarter (available
up until August) have offered some slightly more encourag- ing signs. While retail sales and services sector activity have remained weak, the downturns in these sectors appear to
be bottoming out. Consumer confidence has recovered too, which on past form suggests that the largest falls in household spending have now passed,” says Nicholas Farr, an Emerging Europe economist with Capital Economics.
The Czech economy has been buffeted by a number of head- winds, including large exposure to supply-driven inflation,
EU excl. Ireland: GDP recovery
Source: Oxford Economics / Haver Analytics
Czech consumer confidence & houshold spending
Sources: Refinitiv, Capital Economics
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