Czech manufacturing on firmer ground
The desk interprets the recent improvement in the Czech manufacturing PMI as a potential turning point, signaling resilience despite heightened geopolitical tensions. Per the full note from ing-think, the PMI rose to 53.9 in June, reflecting solid production and new orders. This optimism could pave the way for future rate hikes if growth exceeds expectations. While enhanced inventory management raises some caution, the overall sentiment supports a bullish outlook for the Czech economy in the near term.
What the desk is arguing
The Czech manufacturing sector appears to be on a more solid footing, with the PMI rising to 53.9 in June, the highest since April 2022, supported by increased output and new orders. The resilience in manufacturing amidst geopolitical shocks is crucial as stronger domestic and export demand underpins this growth. Per the full note from ing-think, this positive momentum may lead to rate hikes if robust expansion persists.
The uplift in new orders was at its fastest since February 2022, suggesting that businesses are anticipating higher prices and future demand. Although some caution is warranted due to accumulating inventories and a dip in business confidence, the overall outlook remains constructive, bolstered by easing cost pressures.
Where it sits in our coverage
Our consensus target for the EUR/CZK is 1.075, with a range of 1.04 to 1.12. Currently, jpmorgan maintains a target of 1.10 for March 2026, whereas bofa is more conservative with a target of 1.04 for the same period. The desk's outlook aligns closely with these targets, indicating a positive bias towards the Czech economy's resilience.
How other firms see it
Aligned firms, including jpmorgan, echo the bullish sentiment on the Czech economy reflecting improved manufacturing output. Conversely, bofa presents a more cautious outlook, reflecting potential headwinds in the region.
This outlook can significantly influence the EUR/CZK pair, especially as regional manufacturing data continues to unfold alongside broader topic themes in European monetary policy dynamics.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Czech manufacturing PMI rose to 53.9 in June, highest since April 2022.
- 02Increased production and new orders suggest strong resilience in the sector.
- 03Should expansion continue, potential rate hikes could occur.
- 04Manufacturers are anticipating future price increases with rising domestic demand.
Market implications
Traders should watch the EUR/CZK pair closely, especially around the 1.075 target, as new manufacturing data could act as a catalyst for significant moves. A sustained PMI above 50 will reinforce positive sentiment.
Risks to this view
A significant reversal in manufacturing growth, particularly driven by geopolitical tensions or external shocks, could negate the current bullish outlook. Additionally, negative shifts in business sentiment or consumer demand could prompt downward adjustments.
Older quick take Quick take 12:27 Czech Republic Czech manufacturing on firmer ground The PMI improved in June due to fundamental factors such as solid output, new orders, and a stabilisation in employment. Czech manufacturing may prove resilient to the Middle East shock. In combination with stronger fixed investment, this paints a positive outlook.
Should expansion exceed its potential for a longer period, rate hikes may follow suit A car manufacturing plant in Kolin, Czech Republic Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download David Havrlant Chief Economist, Czech Republic Improvement across the board The Czech industrial PMI edged up to 53.9 in June, marking the strongest improvement since April 2022 and providing a solid foundation for further expansion in the industrial sector. The increase was supported by stronger production and new orders, combined with a stabilisation of employment. Rising demand from buyers at home and abroad, along with a rise in new export orders, lifted the index.
That said, manufacturing inventories accumulated at a faster pace, and business confidence has somewhat weakened since May. Cost pressures eased from recent highs, although both input and output prices were still above long-term average. PMI suggests solid outlook for Czech industry Source: S&P Global, Macrobond "> Source: S&P Global, Macrobond The gain in new orders was the fastest since February 2022.
Nevertheless, several companies mentioned that customers are buying in anticipation of future price increases. Czech manufacturers recorded a punchy increase in production, which grew at the fastest pace in three months. The increase in activity was driven partly by stronger new orders but also mirrored efforts to build up precautionary inventories.
While manufacturers tried to pass on higher costs to customers, the increase in sales prices was more muted compared to previous months. Hopes are pinned on stronger demand and greater geopolitical stability. Exceeding potential implies genuine hiking cycle Overall, Czech manufacturing is heading into a solid expansion mode where strong fundamentals are starting to become more tangible in employment dynamics, with the appetite for workers picking up.
Such a shift, following the 2025 stabilisation, is very much welcome, as this could help the economy to reach its potential somewhat sooner than we have expected. It might be the case that Czech producers prove resilient to the Middle East shock, as they reap dividends from the recent diversification of overseas customers. And that is good news for the Czech economy, as any shock tends to leave winners and looser in its wake.
Labour becomes scarce resource once industry kicks in Source: CZSO, Labour Office, Macrobond "> Source: CZSO, Labour Office, Macrobond If the current fixed investment cycle persists, it could provide a tangible boost to potential output, which would take the economy to another level. However, if economic growth continues to exceed the 2.5% threshold for an extended period, labour is likely to become an increasingly scarce resource, and a new genuine hiking cycle may be needed to chill the broader inflationary pressures. We are not there yet, but we are travelling in that direction.
For sure, the CNB's communication will be the litmus paper to test when this shift begins to materialise. After all, every tightening cycle begins with a single rate hike. We estimate that the output gap will turn neutral early next year, so there still is some time left before tightening becomes necessary.
However, stronger-than-expected GDP growth in the second and third quarters could accelerate that timeline. PMI Monetary policy Growth potential Czechia CNB 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 Older quick take
Sources & References
How we cover this story