(Bloomberg) -- The Czech economy accelerated less than expected in the second quarter, increasing the odds of another, half percentage point cut in interest rates later this week.
Gross domestic product rose 0.4% compared to the same period last year, according to preliminary data published by the statistics office on Tuesday. Most economists surveyed by Bloomberg expected a 0.6% expansion. The economy grew 0.3% over the last three months.
Underwhelming retail sales and weaker exports have put a drag on economic growth even as car production, the Czech Republic’s key industry, rose to an all time high in the first half of the year.
“For the year as a whole, the Czech economy will show a growth of around 1%, which will certainly not be a dazzling result,” said Petr Dufek, chief economist for Banka Creditas AS. “Not a surprising one, if we take into account the situation with our main trading partner – Germany.”
The report comes two days before the central bank is due to decide on interest rates with Vice Governor Jan Frait refusing to rule out a final half a point cut in an interview with Bloomberg last week.
Most economists predict that on Thursday policymakers will slow the pace of easing after delivering a half percentage point reduction at the last four central bank meetings.
“The weaker than expected growth of the Czech economy is rather a reason for a more significant reduction in interest rates,” said Lukas Kovanda, chief economist at Trinity Bank in Prague, adding that he sticks by his forecast for a quarter-point reduction.
The Czech economy teetered on the edge of recession for the better part of last year. Its growth has lagged behind regional peers ever since the Covid pandemic, with the government in Prague determined to rein in spending and curb the budget deficit.
(Updates with chart, comments from economists starting in fourth paragraph)
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