GDP growth decelerates to 5.8% y/y in Q3.

GDP growth decelerates to 5.8% y/y in Q3. GDP growth decelerated to 5.8% y/y in Q3 from the revised 6% y/y increase in the previous quarter, the Czech Statistical Office (CSO) data revealed. Thus, the Q3 slowdown appeared lower than that expected by the markets, according to which the GDP expansion was to decelerate to 5.3%. In the first three quarters of 2006 GDP expanded by 6.1% y/y up from 5.9% y/y increase in Jan-Sep/2005. Exports, growing by 11.4% y/y, contributed most (9.7pps) to overall growth in Q3. However, the external sector lost its role of key source of economic growth which was observed in Q2/2004-Q1/2006 as its overall contribution to GDP expansion was only 0.4pp because imports increased by 10.6% y/y. Thus, fixed investments transformed to the main driving force behind the economic growth as they reported 7.2% y/y expansion in Q3, up by 0.5pp q/q, and their contribution reached 2pps. Their acceleration was mainly supported by the low interest rates and the favourable economic environment in the country. Meanwhile, the inventories increased by some CZK 24.2bn (EUR 855mn), representing 4.2% of GDP as compared to 6.6% in Q2, thus also contributing to the registered 13.6% y/y gross capital formation growth. Furthermore, the households’ consumption added 4% y/y, down by 0.1pp q/q, while government consumption declined for a second consecutive quarter (by 2.6% y/y). The households’ consumption stable growth was mainly supported by the strong real wages increase (up by 3.1% y/y), as well as by the moderate inflation, the low interest rates and the increased disposable income as a result of the reduced tax burden on natural persons. On the supply side , manufacturing (13.9% y/y growth) and wholesale and retail trade (up by 11.5% y/y), as well as transport and storage (up by 4.9% y/y) contributed most to the GDP expansion. The construction reported 5% y/y growth, while mining and quarrying reported the highest y/y expansion (23.1%). At the same time, gross value added in agriculture dropped by 6.4% y/y due to extremely bad weather. Commenting on GDP data, the Czech National Bank representatives said that the Q3 data was in line with the central bank projections in terms of both levels and structure. Still, in regional comparison, the robust Czech economy expansion, equal to that in Poland , was surpassed by that reported by Slovakia (9.8% y/y), but higher than that in Hungary (3.8% y/y).