Downturn in Czech Manufacturing Business Conditions Over 5 Months

September 04, 2012 /

The downturn in the Czech manufacturing economy persisted through August, according to the latest HSBC
PMI data compiled by Markit.

New business fell at a sharper rate, leading to a renewed decline in production and lower input purchases. Firms also cut workforces and lowered their charges. Compounding the difficult business environment was a resurgence of cost inflationary pressures during the month.

The headline HSBC Czech Republic Manufacturing PMI is a composite indicator of manufacturing performance derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.

Any figure greater than 50.0 indicates overall improvement of the sector and vice versa. The
PMI remained below 50.0 for the fifth month running in August and fell from 49.5 to 48.7, signalling a faster deterioration in overall business conditions.

Manufacturing output in the Czech Republic registered an outright contraction in August, having been broadly flat during the previous two months. The overall rate of decline was modest, however, as firms continued to support production through the completion of outstanding business. Backlogs of work fell for the fifth successive month as a result.

Central to the overall worsening in business conditions facing Czech manufacturers was a fall in the volume of new orders. Contraction has been registered for five months in a row, and the latest decline was the
strongest since May. Moreover, new export business has declined every month since last November. There
was specific mention of weak auto-related demand during the month.

Czech manufacturing employment fell in August, ending a two-month run of job creation. Firms also cut back on purchases of new inputs, the volume of which declined for the fifth consecutive month and at the fastest rate since last November. Despite falling demand for inputs, suppliers’ delivery times lengthened during the month.

Goods producers cut their output prices for the seventh month in a row in August, reflecting tough trading
conditions. Moreover, the rate of discounting accelerated to the fastest since April 2010.

Average input prices paid by manufacturers rose in August, having declined marginally the previous month.
Some firms linked greater cost pressures to oil prices, though the overall rate of input price inflation remained weak in the context of historic survey data.

Agata Urbanska, Economist, Central & Eastern Europe at HSBC, said: “The data point to a further extension of the current economic slowdown. It follows two consecutive quarters of negative surprises from GDP data in the first half of 2012. It validates the Czech National Bank drive to deliver maximum policy accommodation.”

Urbanska said another rate cut could be expected in September, bringing the policy rate to 0.25%.

“However, the very limited manoeuvring room for monetary and fiscal policy continues to highlight downside risks to growth this and next year given the current trends,” she added.

“The Czech economy remains a hostage to the eurozone business cycle and there are no signs of improvement there,” Urbanska said.


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