Czech consumer and business sentiment resilient in July
The desk views the July updates on Czech consumer and business sentiment as a reflection of underlying economic persistence amid geopolitical challenges. While consumer confidence dipped slightly to 105.6, business sentiment improved modestly to 100.2, suggesting a nuanced resilience in the economy. Per the full note from ing-think, the divergence in sentiment between sectors indicates a bifurcation, with construction and service sectors performing better than industry and trade. Without major events scheduled in the near term, this sentiment may better position the Czech koruna against broader eurozone trends.
What the desk is arguing
The July sentiment indicators emphasize a mixed but resilient economic outlook for the Czech Republic. Consumer sentiment has softened nominally but remains above historical averages, while business confidence has seen a minor uptick, suggesting that the economy may be stabilizing despite external pressures. Per the full note from ing-think, the slight drop in consumer confidence highlights caution, particularly as expectations for future economic conditions appear pessimistic.
This nuanced sentiment landscape is reflected in the reported figures: consumer confidence fell by 0.9 points, contrasting with a 0.4 point rise in business sentiment, thus reflecting a complex economic environment. The enduring resilience, particularly in construction and services, illustrates some sectoral strength despite broader weaknesses in manufacturing and trade. Both confidence measures, although improved, remain significantly lower than during boom periods like 2018, pushing against trends that could typically support more robust consumer behavior.
Where it sits in our coverage
Current consensus from our internal analysis suggests a target for the Czech koruna at approximately 1.075, with a range of 1.040 to 1.120 against the euro, as noted by firms such as: - jpmorgan: target 1.10 (Mar26) - bofa: target 1.04 (Mar26)
Our assessment indicates alignment with the upper bound of the consensus. Notably, jpmorgan and other firms are optimistic about resilience from the business sector, which may provide a support base for the koruna against otherwise tepid consumer sentiment.
How other firms see it
In the current landscape, firms such as jpmorgan and goldmansachs express alignment with the positive business sentiment perspective, while others like bofa outline a more cautious, contrary stance aligning with concerns around consumer confidence. This divergence highlights broader market sentiments on how domestic and external factors shape future trajectories.
Connectivity to related pairs, such as EUR/CZK, is pertinent, particularly as regional developments in the eurozone impact trader outlooks and operational strategies. The ECB's potential policy adjustments could amplify movements in this regard, especially in light of Czech domestic resilience against a potentially softening eurozone expansion environment.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Czech consumer sentiment at 105.6 reflects historic resilience, despite slight decline.
- 02The business confidence rise to 100.2 indicates sectoral strength, particularly in construction and services.
- 03Overall economic sentiment remains cautious, with significant divergence between sectors that traders should note.
- 04Risk factors include geopolitical tensions impacting consumer outlook and future business expectations.
Market implications
Market observers should closely monitor the EUR/CZK exchange rate for further indicators of consumer sentiment's impact on the koruna. A sustained rate above 1.075 could signal a strengthening trend, while dips below 1.04 would prompt reevaluation of overall economic health.
Risks to this view
The overarching risk stems from a worsening geopolitical landscape, which may further dampen consumer expectations and, subsequently, spending. Additionally, if business sentiment fails to sustain its current levels or if negative economic shocks materialize, it could lead to rapid downward adjustments in market forecasts and koruna valuation.
Articles Czech consumer and business sentiment resilient in July Published 11:53 Czech Republic Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Consumer sentiment softened in July yet remained above its long-term average. Business sentiment hovered around average values despite a marginal uptick. Both indices remain resilient while still below levels associated with better economic times.
The mood in industry is not great, with Europe’s manufacturing stuck between a rock and a hard place David Havrlant Czech consumer confidence inched down while business sentiment rose in July Construction and services vs. industry and trade Czech consumer confidence indicator fell 0.9 points to 105.6 in July, while the business confidence indicator recorded a slight gain of 0.4 points to 100.2. The composite confidence indicator increased marginally to 101.1 in July. Both the consumer and the entrepreneur show quite a decent degree of resilience given the negative supply shock to the global economy as a result of geopolitical turmoil.
That’s good news, yet both confidence indicators remain well below their levels seen during periods of strong economic growth, such as in 2018. Consumer sentiment came in below market expectations, while July’s business mood was slightly better than foreseen. Confidence among entrepreneurs picked up across sectors, by 1.8 points in construction, 1.4 points in trade, 0.3 points in industry and slightly in services.
We see an obvious dichotomy in the economy, with confidence indicators for construction and services floating above their long-term averages, while those for industry and trade are persistently unable to break the long-term average ceiling. The slip in the consumer mood was underlined by future expectations. The share of consumers expecting a deterioration in the economic situation over the next year picked up, while the share of households expecting an improvement in their financial situation over the next year dropped.
Industry and trade unable to break through We are particularly concerned about the outlook for European and Czech industry. Manufacturers find themselves caught between a rock of persistently high energy prices and a hard place of rising Chinese import competition. Together, these forces create a toxic cocktail, which may have serious and long-lasting consequences for European manufacturing, economic performance, living standards and social cohesion.
Yet Europe is not responding, as measures such as the emissions trading system and the dense regulatory spider web remain largely untouched. Those who cannot adapt will perish The thing is that when profitability gets squeezed from all sides for too long, there won’t be enough resources left to secure decent wage growth and feed innovation. And yes, when the outlook turns bleak enough and hopes for a turnaround fade, the experienced and innovative workers will start to leave.
At this stage, the economy reaches a point of no return and risks losing its place among the ranks of highly developed and innovative nations. Good times in industry are long gone Source: Macrobond "> Source: Macrobond Nevertheless, European political leaders seem to be mentally stuck in a world where mutual interdependence is always a good thing, and everyone is a friend at a splendid pool party. There is only one problem: such a world no longer exists; it disappeared into oblivion some eight years ago.
Perhaps one could argue that such a world never even existed when viewed through the lens of long-term economic and geopolitical competition. Indeed, Europe is now reaping the bitter harvest of poor strategic decisions, self-centredness, and naivety. The question is whether the EU economy can prosper only under the assumptions of Fukuyama's 'End of History'– a world of ever-deeper integration and diminishing geopolitical tensions – or whether it can adapt to an era in which geopolitics has come roaring back.
Industrial output has rough time since 2019 Source: Macrobond "> Source: Macrobond So far, I am impressed neither by Europe’s ability to adapt to the changing environment nor by its willingness to safeguard its economic and social prosperity. Unless policymakers address the pressing structural challenges, any recovery in manufacturing is likely to prove little more than a dead-cat bounce. And yes, the prices of today's cheap Chinese imports will eventually rise once Europe's industrial base has been hollowed out, though carrying European-sounding names, if lucky.
Industry Czechia Consumer confidence Business confidence Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author David Havrlant Chief Economist, Czech Republic David joined ING in 2024 as Chief Economist for the Czech Republic.
He gained professional experience at the Czech National Bank and international institutions such as the ECB, the EC,… In this article Construction and services vs. industry and trade Those who cannot adapt will perish
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