- Czech inflation decelerated in May to 1.3% y/y, down from April’s 1.8% y/y. This was somewhat lower than what we and consensus had expected.
- In addition to the May inflation numbers, the Czech statistical office published final Q1 GDP and revised 2008 GDP.
Details
The Czech statistical office today released consumer price inflation for May. CPI decelerated somewhat more than we and consensus had expected. We had expected inflation to drop to 1.5% y/y in May while consensus expected 1.4% y/y. Today’s outcome was however slightly higher than the Czech central bank’s projection of 1.2% y/y. In addition to the May inflation numbers, the final Q1 GDP was published. Final Q1 GDP growth remained unchanged compared with the flash estimate, at -3.4% y/y. Nonetheless, the Q4 08 GDP was revised significantly down to a contraction of 0.1% y/y, down from positive growth of 0.7% y/y. That meant that overall 2008 GDP was revised down to +2.8% y/y, down from previous +3.1% y/y GDP growth in 2008.
Assessment & Outlook
The detailed breakdown of Q1 GDP showed that the main culprits contributing negatively to growth were foreign trade due to falling exports on the back of a plunge in foreign demand as well as a significant fall in investment. The detailed breakdown showed that consumer demand held on quite well in Q1. That will, nonetheless, come to an end in the coming quarters when rising unemployment will significantly limit consumer appetite for spending. All in all, the detailed GDP numbers confirmed that the Czech economy is in recession and we expect GDP this year to contract by more than 3%. Taking into account the economic situation and the subdued inflation outlook, we cannot rule out further monetary easing going forward. This is, however, not our main scenario.
