Three highlights in the weaker GDP growth of half a percent
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
The preliminary estimate of the CZSO pointed to weaker GDP growth of 0.5% q-o-q in the first quarter of 2025, after a 0.7% increase at the end of last year. However, annual GDP growth accelerated slightly to 2% from 1.8% in the previous quarter, helped by a more modest 0.3% quarter-on-quarter increase in GDP in the first quarter of last year.
According to the CZSO, mainly the continued recovery in household consumption and, to a lesser extent, investment and external demand supported the quarter-on-quarter GDP growth.
However, this half-percent increase in GDP during the first quarter suggests weaker economic activity for March, given the solid data for January to February. These pointed to stronger quarter-on-quarter growth in industry and services, accompanied by somewhat weaker growth in retail trade amid slowing growth in its core segment. This was accompanied by stronger foreign trade, but balanced in terms of export and import dynamics.
April's economic sentiment, despite its deterioration, so far does not point to expectations of worse growth in Q2, but Trump's tariffs pose a risk of weaker growth this year compared to the CBA's forecast of 2.1% y/y after 1% last year.
And the three interesting things?
- The half-percent GDP growth in the first quarter can be considered a slight disappointment given the economic activity in January and February (see Chart 1 below). On the other hand, however, the weaker GDP growth in Q1 essentially implies a stronger economic performance given the weaker value added growth in 2024 relative to GDP growth. This was due to the economy showing weaker value added growth (relative to stronger GDP growth) in 2024 due to less subsidies. This is because a decline in subsidies makes GDP stronger than value added in the intertemporal comparison and vice versa. I discussed this phenomenon here.
- From an inflationary perspective, it is worth noting the zero growth in labour productivity due to continued employment growth, up 0.5% q-o-q, which accelerated year-on-year employment growth to 0.9%. Sectoral developments will be key from an inflationary perspective, but this will only become apparent with the GDP details to be released by the CSO on 30 May.
- Sample unemployment probably now provides a better picture of labour market tightness with the current sectoral changes in employment. The half-percent growth in employment in the national accounts in the first quarter implies an increase in employment of 27,000, which contrasts with an increase in registered unemployment of around eight thousand. However, the trend is consistent with the quarter-on-quarter decline in unemployment according to the CSO survey (February). See Chart 3 below.
Chart 1: GDP growth of half a percent in Q1 can be considered a slight disappointment in view of January and February economic activity
Chart 2: However, even weaker GDP growth essentially means stronger economic performance given weak value added growth in 2024
Chart 3: The growth in employment in the national accounts (blue line) contrasts with the increase in registered unemployment (purple line), while sample unemployment (orange line) probably now provides a better picture of labour market tightness
Table 1: Overview of monthly economic activity
