Savings and profits are up, but the central bank is bracing for an economic downturn in Q3.
By BOHEMIST STAFF
PRAGUE – The household savings rate among Czech families has grown 0.4% through the first two quarters of 2016 to reach 11.4% per annum, which though an improvement still falls short of the European Union average of 12.9%, according to data released today by the Czech Statistics Office.
Czech consumers have enjoyed relative growth on the back of economic growth, with year-to-year real income growing 3.9% at the end of Q2 to reach an average of 28,135 Kč per household. However, the data also shows that spending is up 3.1%, reaching 21,071 Kč, which does not leave a lot of room for saving. The average monthly household income per capita in nominal terms was 22,963 Kč.
According to a report issued by the European Commission in July, a lack of savings could have an adverse impact on the economy as it determines to an important extent the availability of credit to finance investments by enterprises and the government.
“Insufficient household saving may therefore hinder investment and dampen economic growth. The disparity in household saving rates may suggest that some countries rely more on foreign savings to finance domestic investments making these countries more vulnerable to external shocks. Investment in these countries may even be depressed due to the lack of finance,” the report states.
For the Czech Republic, a low median savings rate does not reflect its investment rate, which at 8.5% per annum is exactly the EU average.
Among non-financial corporations, the investment rate has declined 2.5% at the end of Q2 compared to the same period in 2015, though profit margins are up 0.7% year-on-year. This represents healthy profit margins, which now stand at 52.3%.
“Profitability increased in the second quarter, the highest level since 2005,” said Vladimir Kermiet, director of national accounts.
But the fun may not last as the central bank yesterday said it was bracing for an economic downturn in the third quarter.
“Indicators from the real economy point to a continuing slowdown in economic growth in 2016 Q3. Industrial production saw a marked year-on-year fall in July, but this was largely due to one-off factors. The long-running decline in construction output, which mainly reflects a drop in public investment, deepened slightly further. By contrast, retail sales maintained solid growth,” it said in a statement.