Matt Atlas

Czech Industrial Production Growth Slows

Industrial and construction production again showed better results in June compared to the previous year. The construction industry even accelerated year-on-year growth to 7.9 percent from 5.8 percent in May, and growth in industrial production slowed to 11.4 percent from 25.3 percent. In addition, the result of the Czech Republic’s foreign trade in June was worse by CZK 40.9 billion year-on-year. Due to slower growing exports, it ended in a deficit of 6.9 billion crowns after 12 months in surplus. This resulted from information published today by the Czech Statistical Office (CSO).

According to experts, a sufficient supply of work is an advantage for the construction industry. On the contrary, it is being pushed down by a shortage of workers and building materials, which have become significantly more expensive as a result. The industry also has to deal with high input prices and labor shortages, but it is also increasingly having to deal with problems in the supply of parts. According to analysts, the lack of resources and raw materials also negatively affects the export of goods from the Czech Republic, although the number of orders is increasing.

In June, construction grew the most year-on-year since April 2019. Building construction, which includes the construction of flats, offices, or warehouses, performed slightly better and improved by 8.3 percent year-on-year in June. Production of civil engineering, including road and railway construction, increased by 6.9 percent. Construction output did not change month on month. “The construction industry sent a neutral signal in June when production stagnated month-on-month. In general, the construction result for the first half of the year is relatively favorable and indicates growth in construction output of around four percent this year, a favorable development was given the previous economic shock,” said analyst Michal Brožka.

Since last spring, when the coronavirus epidemic began in the Czech Republic, the construction industry has steadily weakened, and in several months of last year and this year, it fell by more than ten percent year on year. According to the experts consulted, this year it should increase in percentage units. According to Peter Markovič, General Manager of the building materials retailer Xella for the Czech Republic and Slovakia, the Czech construction industry is a strong and robust sector, but the road to pre-Jewish levels will belong.

The value of new orders in the industry was 22.8 percent higher year-on-year in June. In the case of the automotive industry, orders were 18 percent higher, in foundries and metallurgical metal processing they almost doubled, and the production of metal structures grew by almost a third. The year-on-year decline in orders is recorded in the manufacture of other transport equipment, and there is also less interest in pharmaceutical products and clothing. According to the CZSO, however, industrial production is still affected by the coronavirus epidemic, while industrial production increased by a percentage month-on-month. For the second month in a row, however, car production declined, as did other industries, hampered by a lack of resources and rising prices.

Despite the challenges facing the industry, analysts estimate that it will grow at a double-digit rate this year. It should be driven by rising domestic and foreign demand. “The result for June is good news, but the data show a negative effect of missing components on production, especially in the automotive industry,” said Michal Brožka, an analyst at Komerční Banka. According to him, difficulties in subcontracting will persist in the coming months and will limit the performance of the industry.

In contrast, June’s foreign trade fell far short of analysts’ expectations. According to UniCredit Bank economist Jiří Pour, their estimate of the Czech Republic’s foreign trade balance was far from positive. It deteriorated mainly due to increased imports, especially in the case of cars, oil, and gas, base metals, or chemicals. The General Director of the CzechTrade agency, Radomil Doležal, reminded that Czech exporters are also worried about the lack of resources and raw materials for the second month in a row. According to him, the unfavorable situation continues, when companies have an increased and sometimes even a record number of demands or orders, but are unable to fulfill them.

In June, exports rose by 13.2 percent year on year to CZK 343.9 billion, while imports rose by 30.1 percent to CZK 350.8 billion. However, Poura considers such high import growth to be only temporary.