Last year, the Czech economy dropped the most since the establishment of the independent Czech Republic. Gross domestic product fell by 5.6 percent year-over-year, the Czech Statistical Office (CZSO) stated. However, economists were expecting an even sharper economic downturn; the European Union’s economy dropped even more, by 6.4 percent.
In the fourth quarter alone, the economy contracted by 5 percent year-over-year but grew by 0.3 percent versus the previous quarter. The downturn occurred mainly due to weakened household consumption and a drop in foreign demand in the first half of the year.
“The quarter-over-quarter development was mostly influenced by growing foreign demand. Domestic demand, especially household consumption, has fallen significantly,” commented Vladimír Kermiet of the CZSO.
According to the statistical office, the transport, accommodation and hospitality sectors were the most affected last year, while employment fell 1.6 percent.
However, industrial activity and the demand for Czech goods from abroad prevented a larger economic downturn.
“When the EU starts to invest to get out of the crisis, the advanced Czech industry can benefit from that — more so the innovative and creative businesses than the traditional assembly plants,” believes Petr Bartoň, chief economist of the Natland investment group.
Year-over-year, the Czech economy weakened every quarter last year. The economy was influenced by restrictions on trade, services and movement introduced by the government in March.
However, economists had expected an even steeper decline in GDP. For example, in the second half of October 2020, the Confederation of Industry of the Czech Republic feared that the economy would decline by as much as 12 percent. And Raiffeisen Bank analysts predicted a decline of 7.9 percent.
According to Jan Hadrava, Director of Strategic Consulting at PwC Czech Republic, the results are favorable given the circumstances.
“It is clear that part of the economy, such as the hospitality and retail sectors, are suffering. On the other hand, other fields have admirably learned to cope with the pandemic over the course of the year,” he said.
As the chief economist of BH Securities, Štěpán Křeček, pointed out, the results show that the Czech economy is gradually becoming to some extent resistant to various restrictions the government is using to fight the spread of the virus. At the same time, however, he also pointed out the country’s growing indebtedness and the fact that the government has introduced practically no saving measures.
Compared to the Czech Republic, the European Union performed worse in 2020. The year-over-year decline hit 6.4 percent in the EU and 6.8 percent in the euro area.
Title image: Workers assemble frames for hospital beds at the Linet factory in Slany, Czech Republic, Monday, Oct. 19, 2020. The company was asked by Prime Minister Andrej Babis to deliver beds to a military field hospital for 500 COVID-19 patients last year. (AP Photo/Petr David Josek)