Czech GDP Q1 2008 (Revised Data)

The Czech economy expanded at the slowest pace in more than three years in the first quarter as consumer spending weakened, taking some of the pressure off central bank policy makers to raise interest rates.

Gross domestic product rose 5.3 percent, compared with a revised 6.3 percent in the previous quarter and a preliminary 5.4 percent announced on May 15, the Czech Statistical Office said today. The economy's rate of expansion slowed for a third consecutive quarter after peaking at a record 6.8 percent in 2006.

Household spending was constrained by inflation, which accelerated to 7.5 percent in January, the fastest pace in a decade, before slowing to 6.8 percent in the past two months.

While inflation has been driven by global increases in food and fuel costs and the Jan. 1 tax and regulated-price increases, a fourth year of economic growth topping 5 percent, driven by rising wages and consumer spending, has also helped push prices up.

The waning impact of domestic demand on GDP growth, along with an appreciating koruna, has added to optimism that the inflation rate will fall to its mid-point 3 percent target early next year. The koruna has gained 7.6 percent against the euro so far this year and 16 percent over the past 12 months.

The Ceska Narodni Banka, the government and economists expect the economy to lose momentum this year, growing below 5 percent from a revised 6.6 percent in 2007 because of a projected slowdown in the euro region, faster inflation, limited government social expenditures and the appreciating koruna.

Consumer spending, the main engine of GDP growth in the past two years, rose 2.8 percent year on year in the first quarter, compared with 4.2 percent in the preceding period. Household spending accounted for 1.3 percentage points of GDP growth.

Exports of goods and services climbed an annual 13.8 percent in the first quarter, outpacing a 12.1 percent increase in imports. Government expenditure gained 0.7 percent in the January- March period.

Gross fixed investment rose an annual 2 percent, the slowest pace in more than two years, compared with 7.5 percent in the fourth quarter. That may signal that Czech manufacturers are cutting back on investment in reaction to falling orders from abroad.

The central bank, which forecasts this year's GDP growth at 4.7 percent and 4 percent in 2009, had expected the economy to grow by 6.3 percent from January through March, and the difference between this forecast and the actual result is largely the result of revisions in data for earlier quarters according to the central bank.

On the other hand the central bank's May inflation prediction anticipated a more moderate slowdown of consumer spending and an acceleration in investment growth.