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The PMI economic index, which measures the mood in the manufacturing industry and usually functions as a reliable indicator of the future development of the economy, received a new boost with the onset of spring. While it remains below its long-term normal, it has risen for the third month in a row and is the highest since August 2022.
In March, it rose from 44.3 to 46.2 points. Values below 50 points show that production is still falling, but this decline has been easing recently. The outlook for the future is currently rated the best in more than two years. For the whole of this year, the industry should already show growth.
The PMI index is published by the rating company S&P for most countries in the world. In the case of the Czech Republic, its index is based on a questionnaire among managers from three hundred companies from the manufacturing sector. The poll has been running since 2001, and over that time the index has established itself as a number that reliably signals in advance what hard data on industrial production or gross domestic product will look like.
The survey tracks the change compared to the previous month. In March, the survey showed a deterioration in production and new orders, as well as less demand for labor. “But firms were very optimistic about future production expectations, their confidence rising to the highest level in more than two years. Optimism was fueled by hopes for a revival of new orders,” S&P analyst Siân Jones said in her commentary on the results in the Czech Republic.
However, the growth of orders is still only a prerequisite for the rest of the year. Orders were still falling in March. The main reason is Germany, which is the main customer for the domestic manufacturing sector, and the PMI index there fell in March – to a five-month low of 41.9 points. Another drag is the domestic construction industry, as residential construction is at a standstill due to lower purchasing power and the wait for lower interest rates.
Companies also state in the questionnaires that they are in a pinch regarding prices. On the one hand, they are facing further increases in the price of inputs, but on the other hand, they are talking about the fact that they themselves have to lower their selling prices due to weak demand and competition. In the future, this should contribute to the deadening of inflation accelerated in previous years, on the contrary, by the fact that many companies took advantage of the confusion in prices and raised their margins.
According to the authors of the Czech PMI index, we can currently expect an increase in production in industry for the whole of this year by 2.8 percent. Last year, industry fell by 0.4 percent, in January, according to data from the Czech Statistical Office, it stagnated year-on-year.
Uncertain prospects are also confirmed in interviews by specific industrialists. Petr Novák from the Japanese company JTEKT, which produces auto parts, sees the problem in the ever-high energy prices, which are manifested, among other things, by local factories losing new orders. According to Tomáš Kolář from Linet, the car industry is still doing above average – according to him, capacity release and hunger for orders are evident in other companies.
