Quarterly National Accounts of the CR

Commentary

Contents

4th quarter of 2005

According to preliminary estimates, constant price gross domestic product in Q4 2005 increased by 6.9%, which is the highest figure in the existing comparable time series (since 1995). Adjusted for seasonal variations and the number of working days, GDP grew by 1.9% in comparison to Q3 2005.

The year-on-year development of key demand macroeconomic aggregates (at constant prices) was differentiated, just like in the previous quarters. Like in the previous quarters, the overall economic growth was fuelled by improved trade balance where increase in exports of goods (+12.6%) was more than twice as high as increase in imports of goods (+6.1%) (the difference between these two figures was lower at current prices due to deteriorated terms of trade). The year-on-year growth of gross fixed capital formation (+4.2%) was approximately the same as in the previous quarters. The periodic decrease in inventories at the end of the year was nearly the same as in Q4 2004, so that it actually did not affect the GDP growth. Final household consumption expenditure grew by 2.6% at constant prices year-on-year, and its nominal increase (at current prices) by 4.1% was related to a rise in disposable income of the households sector (+4.4%). Final government consumption expenditure was by 0.6% lower year-on-year.

On the supply side, manufacturing (in particular manufacture of cars and manufacture of machinery and equipment), electricity and gas supply, trade and financial intermediation had a decisive share in the total growth of gross value added at constant prices (+7.6%).

Current price GDP grew by 6.0% to CZK 745.8 billion. The overall price level measured by the GDP implicit deflator dropped y-o-y by 0.8%. It was caused mainly by the development of foreign trade prices: the prices of exports of goods fell down by 3.5% when the prices of imports of goods stagnated on the unchanged average 2005 price level.

The nominal disposable income of the households sector amounted at current prices to CZK 397.3 billion, growing 4.4 % y-o-y. Of their current income, households spent 60.9 % on individual consumption and their current expenditures and saving accounted for 34.3 % and 4.8 % respectively. The principle income item (wages and salaries paid) grew 5.6 %. In terms of current prices, households spent for goods and services CZK 14.9 billion more than in the 4th quarter of 2004, y-o-y growth being 4.1 %. Gross saving raised by CZK 2.4 billion y-o-y up to CZK 29.6 billion. The rate of saving – ratio of gross saving to gross disposable income – increased from 7.15 % in the 4th quarter of 2004 to 7.44 %.

Year 2005

Constant price gross domestic product increased by 6.0% year-on-year (preliminary), which is the highest figure since the independent Czech Republic came into being. When the estimate for Q4 2005 was made, GDP estimates for all the previous quarters of 2005 were also updated (for Q1 from 5.0% to 5.3%, Q2 from 5.2% to 5.8% and Q3 from 4.9% to 5.8%). Into account were taken updated data on VAT collection, imports and exports of goods and services, health insurance companies expenditure and outputs from the processing of quarterly statistical surveys completed with questionnaires that arrived late.

A comparison of seasonally adjusted quarter-on-quarter GDP increases in 2005 indicates a gradually accelerating economic growth. After the stabilised development in 2004 (with quarter-on-quarter rates around 1.3%), quarter-on-quarter increases in 2005 accelerated from 1.4% in Q1 to 1.9% in Q4; the slowdown in Q3 was mainly due to a fall of gross value added in agriculture affected by unfavourable weather during the harvest.

Individual demand components had various effects on the increase in total economic performance. The GDP growth was mainly affected by the development of the balance of external trade in goods and services whose contribution can be estimated at 5.3 percentage points. The growth was also affected by increase in final household consumption expenditure (+0.9 percentage points) and rise in fixed capital formation (+0.2 percentage points). Of the opposite (downward) impact were the year-on-year development of final government consumption expenditure and changes in inventories (both -0.2 percentage points). The key role in the economic growth in 2005 was thus played by the strong improvement of export performance of the economy.

Final household consumption expenditure rose by 2.6% at constant prices and by 3.6% at current prices, which corresponded with gross household disposable income development (+3.8% in 2005). Constant price gross fixed capital formation was higher by 3.7% year-on-year; the fastest growing showed investment in transport equipment (+13.4%) and in machinery and equipment (+5.1%). General government expenditure on final consumption grew by 0.8% in total, but it would not have reached the 2004 level if fighters Gripen had not been included. Quarterly increases and decreases in inventories nearly compensated themselves, which resulted in their total decrease by CZK 1.4 billion (unlike the year 2004 when inventories grew by CZK 25.6 billion). The strongest year-on-year changes occurred in external trade where exports were up by 11.1% and imports by only 4.8% (at constant prices). The total deficit of trade in goods and services (at current prices) in 2004 (CZK -13.1 billion) turned into a surplus (CZK +61.4 billion) in 2005.

On the supply side of the economy, a rise in gross value added of 6.6% (at constant prices) was mainly contributed to by manufacturing, electricity and gas supply, trade, financial intermediation and market services. A decrease in gross value added (at constant prices) was registered in hotels and restaurants.

At current prices, GDP rose by 5.9% to CZK 2 931.1 billion. The overall price level measured by the GDP implicit deflator has not changed y-o-y. The slight growth of producers’ and consumers’ prices was compensated by stronger fall of export prices of goods (-3.2%.), which was higher than the fall of import prices of goods (-1.0%).

The nominal disposable income of the households sector amounted at current prices to CZK 1521.6 billion, growing 3.8 % y-o-y. Of their current income, households spent 62.0 % on individual consumption and their current expenditures and saving accounted for 32.8 % and 5.2 % respectively. The principle income item (wages and salaries paid) grew 5.7 %. In terms of current prices, households spent for goods and services CZK 49.5 billion more than in 2004, y-o-y growth being 3.6 %. Annual gross saving raised by CZK 7.9 billion y-o-y up to CZK 118.5 billion. The rate of saving – ratio of gross saving to gross disposable income – increased from 7.54 % in 2004 to 7.79 %.