Czech Manufacturing Business Conditions Deteriorate Further

August 03, 2012 /

The latest HSBC PMI report signalled an ongoing mild downturn in the Czech manufacturing economy at the start of the third quarter. New orders and purchases of inputs by manufacturers both fell for the fourth successive month, while output remained stagnant.

Inflationary pressures continued to ease, as input prices fell for the first time since last October and prices charged by goods producers declined for the sixth month running.

The headline HSBC Czech Republic Manufacturing PMI is a composite single-figure indicator of manufacturing
performance. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and
stocks of purchases. The PMI remained below the nochange mark of 50.0 in July, continuing the pattern seen
since April. The deterioration in overall business conditions signalled by the headline figure remained
modest, however, as the PMI was little-changed at 49.5 from June’s 49.4.

Manufacturing new orders declined for the fourth successive month in July. The rate of contraction remained only modest, however, having slowed sharply in June from May’s 35-month record. The current sequence of decline is the second-longest in the 11-year survey history.

New export business received in the Czech manufacturing sector fell for the ninth month running in July, the second-longest sequence in the survey history. The rate of decline was unchanged from June. The ongoing downturn in new business resulted in another flat trend in production in July. Manufacturing output has been largely unchanged for the past three months, following a five-month sequence of modest expansion. Reflecting the lack of pressure on capacity, backlogs fell at the strongest rate in three years in July.

Manufacturers cut their purchases of inputs for the fourth successive month in July, albeit at a mild rate.
Despite this, suppliers’ delivery times lengthened for the first time in three months. Meanwhile, employment in the sector rose for the second month running, but only marginally.

Manufacturers’ average input prices fell in July, reflecting lower raw material costs such as steel and oilrelated items. The rate of reduction was only marginal, but the first registered since last October. Meanwhile, output prices fell for the sixth month running, and at the fastest rate since April 2010.

Agata Urbanska, Economist, Central & Eastern Europe at HSBC, said: “The PMI index changed little in July compared to June and still points to a slight deterioration of business conditions in the manufacturing sector. Among the index components, the suppliers’ delivery times improved (lengthened), offsetting worsening output, new orders and employment indices.

“We assess this combination as negative and remain cautious of downside risks. This is particularly the case in face of weaker than expected leading indicators in July like IFO and PMI in Germany. The PMI’s input and output prices indices show a further decline of inflationary pressures, and leave room for the central bank to cut its policy rate to a new record low later this year.”

 

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