Czech industry takes the lead while construction stumbles
In August, the Czech industrial sector displayed stronger resilience with a 2.6% increase in real output year-on-year, while construction output struggled with a 1.4% decline, indicating a notable divergence in economic health. Per the full note from ing-think, the strong industrial performance was largely driven by sectors including transport equipment and chemicals, despite impacts from automotive plant closures. The contrasting construction slowdown hints at potential easing of cost pressures, which could affect inflation in the longer term. This divergence will be critical as we navigate upcoming FX positioning amid broader regional trends.
What the desk is arguing
The desk posits that the Czech economy is experiencing a bifurcation, with resilient industrial growth contrasting sharply against a declining construction sector. Per the full note from ing-think, the industrial output has remained buoyant, whereas construction has revealed vulnerability for the first time after nearly two years of growth.
The 2.6% year-on-year rise in industrial output from August supports the desk's stance, especially given that sectors such as transport equipment drove much of this increase despite seasonal impacts from plant holidays. Meanwhile, the construction sector's 1.4% decline signals potential headwinds, suggesting a softening of previously unchecked growth as the market adjusts to rising input costs.
Where it sits in our coverage
Currently, our consensus target for the EUR/CZK is set at 1.075, with a range identified between 1.04 and 1.12. Notable targets from various firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's view aligns closely with jpmorgan, which predicts continued strength in industrial output sustaining a somewhat resilient CZK, though positioned at the upper end of the current spread, highlighting an expectation for stability amidst contrasting sectors.
How other firms see it
Several firms share a bullish view on the CZK, notably grouping around positive industrial performance. However, there are countervailing sentiments among firms like bofa, reflecting concerns over the construction sector's weakness and its implications for broader economic health.
Traders should also keep an eye on related indicators such as the EUR/USD movements and the sentiment on broader Eurozone economic activity, as these factors influence the CZK outlook in the near term.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Czech industrial output rose 2.6% YoY, demonstrating sector resilience.
- 02Construction output contracted 1.4% YoY, marking a significant economic shift.
- 03Inflationary pressures persist, potentially affecting consumer purchasing power.
- 04Buy signals persist for CZK amid strong industrial growth juxtaposed with construction challenges.
Market implications
Traders should focus on maintaining positions that are aligned with the CZK's strength in light of industrial performance, especially near the 1.075 level. Monitoring potential shifts in construction metrics will be crucial for adjusting strategies in response to changing dynamics.
Risks to this view
A significant reversal in industrial output trends or unexpected sustained weakness in construction could invalidate the current bullish sentiment towards the CZK. Additionally, shifts in regional inflation and broader Eurozone economic conditions could pose risks to this outlook.
Older quick take Quick take Published 09:54 Czech Republic Czech industry takes the lead while construction stumbles Industrial performance remained solid in August, with real output rising 2.6% in WDSA terms. In contrast, construction output contracted after almost two years of unobstructed expansion. Wage figures suggest that any acceleration is not very likely at this point, while inflation should weigh on purchasing power over the coming quarters Czech industrial output rose in August but construction shows signs of slowing down Construction cools off Czech real industrial production gained 2.6% year-on-year in August (adjusted for working days and seasonally adjusted), and was up 0.3% from the previous month, despite the impact of plant-wide holidays in the automotive industry.
Production of other transport equipment contributed the most to the encouraging outcome, supported by the completion of long-term orders for rail vehicles. The value of new orders grew by 5.9% YoY in nominal terms. New orders from abroad rose by 9.3% YoY, while domestic new orders shed 0.5% YoY in August.
Overall growth was mainly supported by computer, electronic and optical equipment, and the chemical industry. The average number of employees in industry was 1% below the level seen last August, while the average monthly wage added 5.8% YoY in August, the same as in the previous reading. Civil engineering takes a hit Source: CZSO, Macrobond "> Source: CZSO, Macrobond Construction output dropped 1.4% YoY in August and was down 0.1% from the previous month, dragged lower by civil engineering.
When looking at the seasonally-adjusted series, this is the first annual decline since November 2024. We may read this as a tangible sign that the construction boom is starting to soften somewhat. Although the weakness is not being driven by residential or commercial building activity, overall cost pressures could ease somewhat across the whole sector.
Such a development could dampen imputed rents in core inflation, as these are partially affected by prices of building materials and wage costs in the sector. House price dynamics set to ease Source: CZSO, Macrobond "> Source: CZSO, Macrobond Overall wages will likely not accelerate in 2027 Overall, Czech manufacturing is starting to take the lead and will enable the Czech economy to expand by around 2% this year, followed by a gradual acceleration over the following year. We read the wage growth figures as a sign that overall wage growth is not inclined to accelerate.
Thus, we are likely to see a c.6% increase in average wages in the coming year, despite government plans for robust pay increases in the public sector and the envisaged surge in the minimum wage. That said, the expected surge in inflation around the turn of the year, coupled with higher prices for essential goods and services, is set to bite into real purchasing power and is likely to take a toll on household spending budgets. Industrial propduction House prices 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 Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author David Havrlant Chief Economist, Czech Republic Older quick take
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