NFCs’ profits were resilient to wage growth and the appreciating koruna

Sector statistics revealed that corporate profits are resilient to rapid wage growth and the appreciating koruna. That happened thanks to strong domestic and external demand. Profit margins increased in both yoy and qoq terms. The investment rate also recorded positive results when it reached 30%. However, households benefited the most from positive economic developments. Real income rose 4.8% yoy while consumption per capita increased 5.6%. That is visible in the savings rate, which dropped to 10.4%. In contrast, households’ investment rate decreased 0.3pp to 8.3%. That is probably linked to the lower affordability of residential housing. Households thus invest less in housing and spend more on consumption.

Capital formation was one of the two main drivers of economic growth. It was mainly thanks to NFCs, which invested in machinery. The contribution of the public sector was almost negligible.

Spring revision set to change the figures once more; this year will remain successful

Looking at the qoq figures, the flash estimates represented a disappointment, which was only partially improved by today’s reading. The domestic economy increased only 0.8%. That is, together with Slovakia, the weakest figure from the region. To some extent, seasonal factors play a role. They increased growth in the second quarter while impeding dynamics in the second half of the year. The June revision should sort out the problem and should also mitigate the contradiction between monthly indicators suggesting a strong economic performance and quarterly figures showing a slowdown in the second half of the year. The overall growth of 2017 amounting to 4.6% should not be affected by the seasonal factors revision, according to Komerční banka.  

We expect similar developments in 2018. Private consumption will continue to benefit from record-low unemployment and strong wage growth. Sound investment activity is set to continue, and the EU funds inflow is set to strengthen. However, investment and consumption are import-intensive, which will be reflected in the trade balance. We expect no contribution from external trade this year.