Czech economy up 5 percent since last year

The GDP is expected to grow through next year but might slow after that

The seasonally adjusted Czech gross domestic product (GDP) was up 0.5 percent in the third quarter of 2017 compared to the previous quarter, and up 5.0 percent compared to the same period last year, according to the preliminary estimates from the Czech Statistical Office (ČSÚ). More detailed data will be released in December. It is the strongest growth in a decade, if 2015 is set aside for being atypical due to one-off factors.

Economists expect growth to continue through 2018.

“The year-on-year growth [in Q3] was contributed to equally by all main expenditure components of the GDP. Domestic demand grew owing to steadily increasing consumption of households and continuing growth of investment expenditure. Most of the economic activities of the national economy were successful, especially industry, but also economic activities of services,” the ČSÚ said in a press release.

Employment continued to grow as well. In Q3 2017, employment was by 0.8 percent higher quarter-on-quarter, and compared to the same time last year it increased by 2.0 percent, the ČSÚ said.

UniCredit Bank chief economist Pavel Sobíšek told the media that the economy seems to be hitting the peak of its cycle. “We saw the same 5 percent year-on-year dynamic already in 2015, but the growth was pumped by EU money that had to be spent by the end of the year,” he added.

IMG Bank chief ecomonist Jakub Seidler said that if 2015 is set aside due to the use of EU funds, then the growth in 2017 will be the fastest in the last 10 years. He expects a growth of 4.5 percent for the full year.

Deloitte chief economist David Marek said that the Czech Republic is currently one of the fastest-growing economies in Europe, along with Baltic States, Slovakia, Romania, Malta and Ireland, and the country was being pushed closer to the EU average in purchasing power parity (PPP).

Economists polled by newspapers and servers agreed that domestic consumption due to higher wages was a key factor in growth.

“As the wage level continues to rise, we expect a high rate of economic growth in 2018,” Štefan Křeček, chief economist of BH Securities, told server Aktualne.cz.

He also warned against the strengthening crown making the Czech Republic less attractive to foreign investors, according to daily Hospodářské noviny.

Lukáš Kovanda, chief economist of Cyprus, told Novinky.cz that growth should continue for the time being. “The real estate market and the labor market are overheating now. Cooling can be expected early in 2019, with the onset of a cyclical downturn in the economy,” he said, adding that he sees a slowdown in the growth of the economy and wages in 2020 and '21.

He also sees a recession coming to the United States in the next four years, which would have a global impact.

Eva Zamrazilová, chief economist of the Czech Banking Association (ČBA), said that the shortage of workers was a stumbling block to growth for many companies, and as a result they are exploring robotics and automation.

Generali Investments CEE Radomír Jáč said that the Czech National Bank likely won't raise rates again until the new year, likely in February, and won't take action in December.

Economists pointed out that the effects of the rate increases already made are delayed and have not yet been seen in economic results.

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