In terms of structure, however, the opening up of the economy is clearly visible. Household consumption jumped much faster than we estimated, 6.5% qoq and 7.4% yoy. Investments in fixed capital also rose above expectations, adding 4.2% qoq and 1.5% yoy. On the contrary, what kept the economy down was foreign trade. Exports of goods fell 0.7% qoq, while imports grew 5.1% as domestic demand and investment increased.

From the point of view of the production side, weaker growth in industrial production by 0.4% qoq and 0.1% qoq was disappointing, as already indicated by previously published data. The lack of production components and materials is a strong brake on the economy and exports at the moment. This is partially evident in the construction industry, which grew only 0.5% qoq in the second quarter and stagnated year on year. However, the recovery has so far been rather average in the private services sector, where there was quarter-on-quarter growth of 1.0% and year-on-year growth shifted to a slightly positive rate of 0.4%.

In terms of quarter-on-quarter contributions, the main driver of growth in 2Q was household consumption (2.9pp), followed by investment in fixed capital (1.1pp). On the contrary, the main brake was foreign trade with a negative contribution to GDP growth of 3.5pp.

Given that the significant end of anti-pandemic measures did not begin until around the middle of the second quarter, data on GDP growth in the third quarter should also show strong growth. It is probable that in terms of quarter-on-quarter dynamics, this summer will be the fastest point of economic recovery. This should be followed by a gradual slowdown. The main brake on growth is currently the lack of production components and gradually also the tightening labour market. In addition, there is still some uncertainty related to the Delta variant.

At the beginning of the year, GDP growth was boosted by high inventories. Their high level is likely to persist, but household consumption and investment are now becoming the main drivers of economic growth. Our full-year estimate of GDP development for this year is 4.2%. Developments in the second quarter alone show a risk of slightly slower growth. Strong household consumption is an argument in favour of further tightening monetary policy. At the end of September, we expect a further increase in the CNB's main repo rate to 1.0%.

Regards,

Michal Brožka

Economic and Strategy Research

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