CEE ECONOMY-Czech economy falls a little deeper in Q4 as technical recession confirmed

(Adds quotes) By Jason Hovet March 3 (Reuters) - The Czech economy fell a little sharper than expected in the fourth quarter, data showed on Friday, as the country tipped into technical recession at the end of 2022 with household consumption falling due to high inflation. The Czech economy shrank 0.4% quarter-on-quarter, more than a flash estimate of 0.3% and following a 0.3% drop in the third quarter, updated data from the statistics office showed. It confirmed preliminary data which had estimated a second quarterly contraction, as the Czech Republic joined Hungary as two central European economies falling into recession in the second half of last year. Poland, too, saw its economy contract in the fourth quarter. Little relief is seen for central Europe's economies in early 2023 as the region suffers under decades-high inflation, well-elevated interest rates, and consumers holding back spending as their paychecks cannot keep up with price growth. The data showed household consumption dropped 2.8% quarter-on-quarter, a fifth straight quarterly contraction. Petr Dufek, chief economist for Banka Creditas, said household spending was now down about 8% versus the final quarter of 2019, before the global COVID-19 pandemic hit. "The fall in real purchasing power caused by high inflation led to a further significant reduction in purchases of goods and services, which accelerated at the end of last year," he said.

On a year-on-year basis, the economy gained 0.2%, below an initial estimate of 0.4% seen in data at the end of January. For the full-year 2022, growth was at 2.4%. The central bank forecasts a contraction of 0.3% in 2023. The slow economy will back central bank arguments to hold steady on interest rates despite inflation still at over 17%. The bank has been on hold since last June, with the majority arguing for steady policy following a year-long hiking cycle that had raised the base rate by 675 basis points to 7.00%. Central bankers have not taken a rate hike off the table if demand pressures build, although markets price in hikes by the end of the year. Analysts said an economic rebound could come in the second half. "In our view, the economic downturn is likely to persist in the first half of this year, although more favourable weather leading to a fall in energy prices is bringing more optimism and less negative economic scenarios than what was seen in the market late last year," Jakub Seidler, the chief economist for the Czech Banking Association, said.
(Reporting by Jason Hovet in Prague, additional reporting by Robert Muller; Editing by Varun H K)