Industry and construction returned to decline in March, foreign trade exceeded estimates

Commercial presentation Update: 05/07/2024 16:02
Issued by: 05/07/2024, 09:17

Prague – Industrial and construction production in the Czech Republic returned to year-on-year decline in March after growth in February. The Czech Statistical Office (ČSÚ) reported today that industry fell by 2.7 percent, mainly due to the automotive sector, and construction fell by 8.3 percent due to land construction, which is the most in three years. Analysts contacted by ČTK were disappointed by these results, while the March foreign trade result exceeded the market estimate. According to the CZSO, it ended up with a surplus of CZK 39.3 billion, which was CZK 22.3 billion higher year-on-year.

Compared to February, production in industry was down by 1.6 percent and in construction by 7.8 percent.

Statisticians justified the year-on-year drop in industry not only by the high comparative base in the production of cars, but also by the continued decline in the production of machinery and equipment. According to Cyrrus analyst Vít Hradil, the decline in industrial production can only be partly explained by the high comparative base from last year, when car production grew enormously. “However, the same cannot be said about the production of machinery and equipment, whose year-on-year decline is not just statistical, but real,” he said. According to Banka Creditas analyst Petr Dufek, there is also a lack of demand. However, Deloitte economist Filip Pastucha perceives information about new orders positively, their value in March increased by 5.1 percent year-on-year. Domestic ones fell by 1.1 percent, but foreign ones rose by 8.6 percent, which he says could indicate a gradual recovery in foreign demand.

According to statistics, the year-on-year decline in the construction industry was mainly affected by construction, i.e. the construction of buildings, which fell by 11.1 percent. Engineering construction, which includes building roads or telecommunications and energy networks, weakened slightly, by 0.9 percent. Development analysts blame still high interest rates, lengthy permitting processes and investors’ uncertainty about starting new projects.

“It’s probably hard to blame the result on the weather, because this year’s March was exceptionally favorable from the point of view of temperatures. The main problem of the construction industry, especially the land sector, remains new orders,” said Creditas Bank economist Petr Dufek. According to BH Securities analyst Štěpán Křeček, lowering interest rates will help the Czech construction industry.

At the beginning of May, the Czech National Bank (ČNB) reduced the base interest rate by half a percentage point to 5.25 percent, and thus reached the lowest level since the beginning of May 2022. However, according to some experts, the decrease in mortgage rates does not necessarily copy the reduction of interest rates by the CNB . However, Komerční banka economist Jan Vejmělek believes that the situation in the construction industry will improve and for the whole year the industry will eventually show moderate growth after last year’s decline of 2.6 percent.

While the results of industry and construction were not good according to analysts, the Czech Republic’s trade balance with foreign countries pleasantly surprised them, as the market had expected a surplus of 17 billion crowns. According to them, the final surplus of 39.3 billion crowns was mainly reflected in the faster decline in imports. Komerční banka analyst Jana Steckerová stated that the most significant drop was in the import of products in the manufacturing industry. “This was apparently reflected in the failure of deliveries of electric motors for Škoda Auto from the German plant in Kassel,” she added. According to her, trade in oil products and electricity had a negative effect on the overall balance.

Oil prices, according to Deloitte economist David Mark, are mainly driven by tensions in the Middle East. “At the beginning of the year, the price of Brent oil hovered around $80 per barrel, in March the average price was $85 per barrel. Unfortunately, it continued to rise in April, which will further negatively affect the trade balance,” he said, pointing out that even though domestic demand is getting from the inflationary shock, is still low, indicating a lower volume of imported goods.

According to the CZSO, imports to the Czech Republic in March fell by nine percent year-on-year to 369.4 billion crowns and exports by 3.3 percent to 408.7 billion crowns.

CR trade industry construction economy AUDIO GRAPHICS March CZSO OPENER