Czech industry gradually heading towards a good performance
The Czech industrial sector exhibits signs of rebounding, with June's industrial production rising by 4.0% year-on-year, as reported in recent bank research source. While this suggests that Czech manufacturing may be moving past its recent challenges, attention is needed on the underlying factors driving these numbers, including potential distortions related to pre-stocking ahead of geopolitical tensions. With no immediate high-impact calendar events, the outlook appears constructive, albeit cautious, given that full economic recovery is still some time away.
What the desk is arguing
The desk posits that the Czech industrial recovery is gaining traction, supported by a strong June performance in manufacturing. Per the full note, industrial production outperformed expectations, signaling potential stability after a turbulent period.
Industrial production grew by 4.0% year-on-year in June, with notable growth in new orders, which increased by 13.1% YoY. However, while the numbers are encouraging, it is critical to consider recent wage growth of 7.9% as a possible financial strain on consumers that could temper future growth.
Where it sits in our coverage
Czech koruna exchange rates exhibit a consensus target of 1.075, with a range between 1.04 and 1.12. The following firms have specific targets: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective aligns with the broader consensus that expects a stable outlook for the koruna, though it may sit towards the higher end of anticipated ranges given the milder recovery narrative.
How other firms see it
Several firms, including jpmorgan, see merit in the strengthening industrial sector of the Czech Republic, aligning their forecasts with a constructive view. In contrast, bofa maintains a more conservative stance, suggesting caution regarding the sustainability of this growth.
Watching the EUR/CZK dynamics may offer insights, as shifts in the eurozone's economic outlook often have spillover effects on the Czech economy, further complicating the growth narrative.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Czech industrial production rose 4.0% YoY in June, signaling recovery.
- 02New orders surged, with exports climbing by 19.5% YoY.
- 03Wage growth has increased to 7.9%, indicating cost pressures.
- 04Construction output remains mixed with a marginal decrease month-on-month.
Market implications
Traders should watch levels around 1.075 for signs of further strength in the koruna, particularly as industrial data continues to unfold. Monitoring upcoming economic reports from the EU could also provide essential context for the CZK's performance.
Risks to this view
Any shifts in external economic conditions, particularly from the eurozone or geopolitical events, could reverse the current favorable outlook. Additionally, sustained inflation could diminish real consumer spending, hampering the anticipated industrial recovery.
Newer quick take Older quick take Quick take Published 09:37 Czech Republic Czech industry gradually heading towards a good performance Industrial performance surprised on the upside in June, confirming that Czech manufacturing may be out of the woods, even if a full recovery remains some way off. Strong new orders look promising but may have been distorted by Hormuz-related pre-stocking. Wage growth picked up in June, but quarterly averages suggest a slowdown Czech industry performed better than expected in June Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download David Havrlant Chief Economist, Czech Republic Full rebound awaited Czech real industrial production grew by 4.0% year-on-year in June and rose 1.2% from the previous month, coming in stronger than expected.
The nominal value of new orders was up 13.1% YoY, with new orders from abroad gaining 19.5% YoY and domestic new orders up by 2.2% YoY. June’s employment in industry was 1.1% weaker than in the previous year, while average annual wage growth increased to 7.9% in June from 3.7% previously. Construction output increased by 2.0% YoY in June yet shed 0.3% month-on-month.
The average number of employees in construction increased by 2.1% YoY and the average wage growth quickened to 7.2% YoY in June from 3.9% previously. The trade balance surplus widened in June, supported mostly by the motor vehicles segment. Total industrial production driven by electricity output Source: CZSO, Macrobond "> Source: CZSO, Macrobond June’s annual growth in industrial production was also driven by base effects, reflecting relatively low electricity production last year.
When zooming in on manufacturing itself, it expanded by 2.6% from the previous year. This is progress when compared to the bleak years of 2023-24 when real manufacturing output was not growing at all on average, but it is still far away from the full expansion of above 5% on average between 2014 and 2018. It remains to be seen how fast Czech industry can recover to a full-throttle performance though we believe this is unlikely to happen before 2027, with current conflicts hampering a smooth recovery.
Still, the strength of new orders is very promising, although this may partly reflect pre-stocking driven by the Hormuz shock. New orders rock but pre-stocking may be the story behind it Source: Macrobond "> Source: Macrobond Czech industry and the Czech economy overall show a rather decent level of resilience in the face of the global negative supply shock. This is an important piece of information entering the Czech National Bank's reaction function today.
The rebound in June’s wages in both industry and construction will be of particular interest. Nevertheless, when looking at quarterly averages of monthly wage data, the annual wage growth slowed to 5.8% in the second quarter from 6.1% in the first. The annual gain in real wages softened to 3.7% in the second quarter from 4.3% in the first, according to averages of monthly observations.
With the unemployment rate on a gradual upward trend, we don’t assess the labour market as red-hot right now. With this in mind, we see a lot of hawkish talk and caution referring to wage and credit dynamics, while rates will likely stay unchanged at 3.75%. Wage growth New orders Industrial production Czechia Construction output 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 Newer quick take Older quick take
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