GDP growth decelerated markedly to 1.9% in Q2/00 (from 4.4% in Q1/00). The market did expect a slow-down (consensus for Q2 was +1.7%) so the number does not change the economic outlook of the Czech Republic.
The deceleration has two main underpinnings. First, Q2 of 1999 saw a tiny growth of 0.1% while GDP in the first quarter of 1999 fell by massive 3.3%. Second, foreign trade ceased to support growth as it did in Q1/00. The net export growth in first quarter was a topic of our analysis (see July Macroeconomic Focus
). In the second quarter, exports grew by 16.4% in real terms but imports surged by even faster 17.6%.
Domestic demand became the main factor behind the growth: private consumption grew 1.7%, government consumption by less than 1%. Most positive news came from investment that rose by surprisingly robust 5.9% (compared to 1.2% growth in Q1/00). We should keep in mind, though, that investment fell by massive 8% in Q2/99.
GDP growth in the second quarter confirmed that the rapid growth of th efirst quarter was partly a statistical mirage and that the underlying growth of the Czech economy is around 2%. We expect that private consumption will grow 2% in the year 2000, government consumption by slightly less. Investment will keep rising, on average by 4% this year. Net exports will drag economic growth by the end of this year, but the impact will be mild, provided that oil prices do not double yet again.
Thus, we maintain our estimates: GDP will grow 2.5% this year and 3.5% in 2001. Better than contractions of 1997-1999, but sluggish still.