Czech Prime Minister Andrej Babiš at the European Council in Brussels on July 21, 2020 via European Council

Czech Republic sees historic drop in GDP due to coronavirus pandemic

The drop in Czech GDP was lower that expected but still the biggest since 1993

According to a preliminary estimate, the GDP in the second quarter of 2020 fell by 8.4% compared to the first three months of 2020, and by 10.7% compared to the second quarter of 2019. The figures were adjusted for price effects and seasonally adjusted.

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“In the Q2 2020, the Czech economy was at a historical low,” the Czech Statistical Office (ČSÚ) said.

However, the decline is slightly smaller than many experts expected, as there had been talk of a year-on-year decline in GDP of up to 18%.

“The negative year-on-year GDP development was caused mainly by a marked decrease in external demand and by lower household consumption as well as investment activity. The gross value added (GVA) decreased in almost all economic activities of the national economy,” ČSÚ stated.

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“A markedly negative influence on the GVA decrease came from industry and a group of economic activities of trade, transportation, and accommodation and food service activities.,” ČSÚ added.

Vladimír Kermiet, director of the ČSÚ National Accounts Department, said the reduction or closure of operations in industry, as well as in trade, transport, hospitality and accommodation, had a significant negative effect.

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The second quarter of 2020 covered the months of April May and June, when at times various measures against novel coronavirus were in effect that restricted shopping in large stores and limited tourism.

Many people is sectors such as tourism and entertainment, and even some sectors of manufacturing, were temporarily without income, which restricted spending. The measures, which began in March, began to be relaxed in mid-May.

“It’s the same as in Germany, of course we expected it,” Czech Prime Minister Andrej Babiš (ANO) said, referring to a 10.1% quarter-on-quarter drop in German GDP. France saw an ever bigger quarter-on-quatrer dip, falling 13.8%.

“I am an optimist from the point of view of the budget; we will see how our industry is dealing with it,” he added. “I believe our companies and people … will be flexible and adapt to the situation, but of course it will be a challenging year.”

Babiš added that government was working on a new legislative program to help return workers to full pay.

Analysts praised the government steps so far, but were cautious about the future.“The better-than-expected result is due to the relatively favorable development of retail trade in the given conditions right at the time of the opening of the economy in May,” Lukáš Kovanda, chief economist at Czech Fund said, according to new server iDnes.cz. “Industry also experienced a relatively significant recovery in June,” he added.

Other analysts pointed out that the Czech economy in the third quarter, which includes July, August and September, is heavily reliant on tourism, which is still in a slump. A quick recovery from the drop in GDP is not expected.

There was also a notable decrease in employment in Q2 2020, compared to the previous quarter by 1.6%; when compared to the corresponding quarter of the previous year, it decreased by 2.1%.

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