In the first quarter of 2024, the Czech economy experienced a significant boost due to household consumption, marking its strongest economic growth in two years. This positive sign is especially significant for Central European economies, which have been recovering from last year’s inflation surge that impacted consumer activity.
The increase in consumer spending has helped to offset weaker factory activity, resulting in an annual growth rate of 0.2% and a growth rate of 0.3% from the previous quarter of 2023. While final figures fell slightly below early estimates, household consumption and external demand were the main drivers of growth, contributing 1.2 and 2.1 percentage points to annual growth, respectively. However, gross capital formation lagged behind due to lower investments in housing, IT, and machinery.
For markets, the renewed consumer spending in Central Europe, particularly in the Czech Republic, is expected to boost confidence and offset the impact of reduced factory activity. This increase in spending, coupled with a stabilization of inflation, could lead to improved market sentiment and potential investment opportunities in the region. Investors should remain cautious as the Czech economy is still slow to return to pre-pandemic levels but are optimistic about sustainable growth if consumer demand continues to rise.
Creditas Banka’s Chief Economist referred to this growth as ‘very symbolic,’ indicating a positive trend moving forward for Central Europe economies like Czech Republic that have been recovering from last year’s inflation surge that impacted consumer activity .