Czech Q3 Growth Fastest in 2 Years

The Czech economy grew by 0.5% on a quarterly basis and by 5% year-on-year in the third quarter, lifted by strong household consumption and investments, the statistics office said, confirming earlier flash estimates.

Year-on-year rise in gross domestic product is the fastest in two years for the Czech economy, which has been among the strongest in the European Union, helping push unemployment to the lowest in two decades and raising wages by over 7%, Reuters reported.

The statistics office said domestic demand was becoming the main driver for growth while external trade also contributed. Third-quarter growth was in line with central bank forecasts. The bank, which has delivered two interest rate hikes since August, expects full-year expansion of 4.5%—which would be the second fastest rise in the past 10 years.

Increase in domestic economic activity will be driven mainly by robust growth in household consumption, reflecting optimism of consumers in an environment of high growth in their income. Investment will also continue to rise, not only in the private sector, but also in the government sector as a result of higher drawdown of EU funds.

“Monthly data from the real economy has shown the economy is gaining speed in the last quarter (of the year),” Viktor Zeisel, economist at Komercni Banka, said. “It is benefiting from good dynamics in world trade as well as from an improvement in domestic demand.”

The Markit Purchasing Managers’ Index showed on Friday that manufacturing business sentiment rose to a six-year high. Czech inflation has stuck above the central bank’s 2% target this year. Fast wage growth and a tight labor market have allowed the central bank to become the first in the EU to embark on a policy tightening path.

While markets give a less than 50% chance of the bank delivering a third rate hike when it meets again in December, many analysts see the bank continuing to raise borrowing costs at the first policy meeting in 2018, which comes in February.

The koruna was unmoved by the data on Friday, retreating more with the central European markets after last week touching its highest level against the euro since March 2013. It traded down 0.1% at 25.545.

The central bank abandoned a koruna cap regime keeping it weak in April. It has gradually gained nearly 6% since.