Czech economy shrunk in the third quarter, while recovery in Poland and Hungary accelerated

Preliminary regional data on real GDP growth in the third quarter took markets by surprise. While the Czech GDP, contrary to expectations, dropped by 0.5 % quarter-on-quarter (market consensus was 0.5 % growth) and fell 1.6 % year-onyear, the pace of growth of the Hungarian economy significantly accelerated; GDP rose by 0.8% Q/Q and 1.7% Y/Y. In Poland, GDP growth reached 1.9 % Y/Y (+0.6 % Q/Q) and was thus a bit higher than expected, too.

The Czech statistical office confirmed that investment activity acted as the main drag on the economy. Moreover, net exports, a traditional engine of the Czech growth, also contributed negatively. In the latter case, pre-stocking with fuels can be - at least partly - to blame. The pre-stocking stemmed from legislative changes taking effect on October 1 that had been passed to stamp out fraud in the fuel
industry. Final consumption (major target of recent CNB interventions) remained broadly unchanged compared to the same period last year.

Faster than expected GDP growth in Hungary was allegedly driven by improved performance of agriculture, manufacturing and (unlike in the Czech Republic and Poland) construction. Although preliminary growth figures point to a rising growth momentum, we expect the MNB to continue with monetary easing as inflation slipped to the nearly 40-year low in October.

Regarding market impact, while the koruna is trading broadly unchanged in the vicinity of EUR/CZK 27.10, both the forint and the zloty have strengthened since the release of the GDP data.