Czech economy slips into technical recession to end 2022

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The Czech economy contracted further in the fourth quarter, the statistics office said on Tuesday, pushing the central European country into a technical recession for the first time since 2020 as high inflation hit households at the end of the year.

With other central European economies fighting off recession risks, the Czech data on Tuesday was the first in the region to show two quarterly contractions in a row.

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Czech gross domestic product (GDP) decreased by 0.3% quarter-on-quarter, following a 0.2% drop in the third quarter, but was better than a Reuters poll forecast of a 0.6% fall.

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It was the first drop in consecutive quarters since the coronavirus pandemic hit in the first half of 2020.

On a year-on-year basis, the economy rose 0.4%, also better than expected, but slowing from a 1.5% increase in the previous quarter.

Banka Creditas chief economist Petr Dufek said the fourth-quarter figure was decent given the fall in purchasing power.

“Weakening domestic demand was compensated by better foreign trade and investments,” he said, adding the economy is expected to remain weak at the start of 2023.

For the full year, the Czech economy rose 2.5%, which follows Poland on Monday reporting a 4.9% rise in GDP last year.

Analysts and the Czech central bank have expected a mild recession, with high energy bills and food prices leading households to cut back drastically, hammering consumer sentiment and demand.

The fourth-quarter drop was not as deep as the central bank’s 1.3% forecast. It will likely be a further argument for policymakers to keep rates stable as they did in the last half of 2022, ending a sharp hiking cycle that brought the base rate last year to a more than two-decade high of 7.0%.

Inflation stood at 15.8% in December, and a slight uptick is expected in early 2023, followed by an easing after the spring. (Reporting by Jason Hovet in Prague; Editing by Jamie Freed)