Czech industry remains stagnant, no turnaround on the horizon yet, analysts warn – Seznam Zprávy

Industrial output in the Czech Republic fell by 3.4 percent last month compared to last June. The decrease is mainly due to low foreign demand for Czech engineering production, which decreased by 12.2 percent year-on-year, and also for cars, and production decreased by eight percent compared to June 2023. There is a negative impact still at relatively high energy prices.

“Demand in Europe, especially for investment goods, and relatively high energy prices, which began to affect the Czech economy about two years ago, is manifested especially in sectors that want energy consumption,” says Pavel Sobíšek, Chief Economist of UniCredit Bank.

Czech industry is still lagging behind the performance in the period before the covid pandemic. “Since 2019, the industry has moved away this year and is currently 1.5 percent below the pre-pandemic level,” notes Creditas bank chief economist Petr Dufek. ” This gap is mainly caused by worse performance in the energy industry, and metal producers and engineering companies also recorded losses. Automobiles, on the other hand, are up almost 15 percent,” he said.

However, compared to May, industrial production in the Czech Republic increased by 0.7 percent. The biggest contributors were the production of metal construction, motor vehicles and machinery, while the biggest fall was the production of computers and electronics and plastic products.

“The June business downturn is not surprising given the development of soft indicators in the form of sentiment or PMI. A decline of only 3.4 percent is still a relatively good result,” Dufek believes. “Compared to May, production increased slightly, both in the entire industry and in its core – processing industry , respectively in the auto industry. This at least partially erased losses in May, when production fell 2.2 percent in one month,” he said.

However, as Jakub Seidler, chief economist at the Czech Banking Association says, the month-on-month development of industrial production is very volatile this year. “The month-on-month dynamics are changing a lot this year and they were between –3.1 percent in January after +2.1 percent in February,” says Dufek.

Reasons for some optimism regarding the development of industrial production in the future come from growing orders. Their value increased by 4.1 percent year-on-year in June. “However, they are measured in current prices, so they are slightly displaced by production inflation,” warns Dufek. “However, the good news is that orders new arrivals to the automotive industry, which could therefore maintain the relatively good results so far in the second half of the year,” he said.

However, even moderate month-on-month growth has not yet balanced the overall decline in industrial production in the first half of the year. “June’s numbers gave positive signs of future development, although domestic business fell short of expectations this year and fell 1.6 percent year-on-year in the first half of the year, while estimates at the end of the year are predicted. its moderate growth,” says Seidler.

According to Tuesday’s data, business orders also grew in Germany, which is a major customer for Czech companies. Even in the neighboring country, however, the development of this indicator is changing. “This is the first dip, the first month-on-month growth after several months of bad news coming from the German economy. These numbers are very volatile and can be affected, for example, by one big contract for a military base,” Sobíšek measures his optimism.

Statistics on industrial production in Germany should be published on Wednesday, but Sobíšek does not expect any new news. “I don’t think there will be any good surprises. Czech industry will generally benefit from the increase in German business orders, but this will happen with a certain delay. It may take several months before all orders are implemented,” he said.