The March results of the Czech industry are weak, but not surprising. Experts agree on this in their comments. Industrial production in the Czech Republic fell by 2.7 percent year-on-year again in March, after a one-month increase, compared to February, production was down by 1.6 percent. This follows from the data of the Czech Statistical Office (ČSÚ). The reason for the decline was, among other things, last year’s high comparative base in the production of automobiles and the continued decline in the production of machinery and equipment.
According to the Chief Economist of Creditas Bank Petr Dufek, purchasing managers’ indices and confidence indicators have been hinting at the poor condition of the largest Czech industry for many months. “Therefore, the basic story does not change – there is a lack of demand. Both domestic and foreign. There is nothing left but to finish older orders, limit production, reduce stocks and lay off,” said Dufek.
“What will be next? New orders look very promising, but mainly only because of the low comparative basis. Therefore, even a 20% increase in automotive orders should be taken with a grain of salt. In addition, car production doesn’t really have much room for growth at the moment,” said Dufek.
Cyrrus analyst Vít Hradil said that economists did not have high hopes for the performance of the industrial sector, but it nevertheless managed to disappoint. “This can only be partly explained by the effect of the high comparative base from last year, when the production of motor vehicles increased enormously, which optically worsens this year’s statistics. However, the same cannot be said about the production of machinery and equipment, whose year-on-year decline is not just statistical, but real. The month-on-month comparison sounds very unpleasant, which clearly shows that the industrial sector is still looking for its bottom,” said Hradil, adding that, according to the so-called leading indicators, no significant improvement is in sight.
German problems
According to him, the industry continues to suffer from weak demand, while investment activity is dampened by relatively high domestic and foreign interest rates, while consumer activity is only gradually awakening. According to Petr Dufek, another problem is that the Czech industry is still two-speed. “So it looks like automotive is on one side, and the others are on the other,” said Dufek.
According to Trinity Bank Chief Economist Lukáš Kovanda, the main reason for the higher-than-expected drop is the high base of last March, especially in the area of automobile production. “And also this year’s March production cut in the car industry due to missing parts. Which is a problem that has appeared with varying intensity since the pandemic, when international supply-customer chains were fundamentally disrupted. Czech industry, especially the production of machinery, is also troubled by an overall lack of demand, due to the restriction of consumption due to inflation and expensive energy or the restriction of investment in an environment of relatively high interest rates, as well as weaker demand in countries such as Germany, which is related to similar factors as in the Czech Republic, Kovanda said.
According to Vít Hradil, it is Germany that is teetering on the edge of economic decline. “While until recently the catch-up of previously accumulated orders and the drop in the prices of production inputs provided at least partial consolation, both have already become a thing of the past,” says Hradil.
According to Petr Dufek from Creditas bank, bad news is also coming from Germany. “The new factory orders certainly did not dazzle. Therefore, Czech companies in the position of subcontractors do not expect any quick positive turnaround. We probably won’t get an impulse for the economy from industry right away,” says Dufek.
According to Vít Hradil, he does not have high hopes for improvement even in the coming months, and according to Cyrrus, the Czech industry faces at least one more difficult quarter. “In the second half of the year, reviving consumer demand and a drop in interest rates should have an impact, however, this will not be enough for a good year. At the moment, we consider year-long industrial stagnation to be the most likely,” said Hradil.
