Conditions in the Czech manufacturing sector continued to improve in October, however, the Purchasing Managers’ Index (PMI) fell to 55.1 points for the fourth time in a row from 58 points in September. PMI is the lowest since last November, informed IHS Markit. The level of 50 points in the index is the divide between growth and decline.
“The October index thus confirms what has been observed from other economic indicators in recent weeks. The manufacturing sector is not able to procure the necessary input components in a situation of congested global logistics chains, and while until recently companies perceived this situation as temporary, they are now adjusting their plans for the coming months, for which they are reducing order volumes, “said Raiffeisenbank analyst Vít Hradil. According to him, these are unfortunate signals for the Czech economy, which do not give hope for a successful last quarter of this year.
Even according to ČSOB analyst Petr Dufek, the index indicates that weaker industry results should be expected in the coming months. “At the same time, the industry’s results for September will be weak. Given the more than 50% year-on-year decline in car production, no favorable number can be expected,” he said.
According to IHS Markit, the data showed that the slowdown in the Czech manufacturing sector continued at the beginning of the fourth quarter, and growth was hindered by a new decline in production volumes and new orders. According to the survey, the main brake was supply-side problems. Delayed deliveries of inputs and the lack of essential materials at suppliers thwarted production plans and customer demand.
New orders fell in October for the first time in more than a year. Some companies have stopped production due to problems with securing the material, which has led to a drop in demand. According to the survey, the deterioration in market conditions in the automotive sector also contributed to lower order intake. This also contributed to a slight decline in new export orders. The survey also showed that some companies reduced their purchasing activity due to weaker sales, the struggle for materials and longer delivery times.
“The slowdown in the Czech manufacturing sector, which we have been seeing in recent months, picked up speed in October as production plans are hit hard by severe disruption to global supply chains. These problems are beginning to be reflected in supply, as evidenced by the first decline in Czech production orders since August 2020. It is evident that growth in the Czech manufacturing sector is starting to slow down, “said IHS chief economist Markit Joe Hayes.
However, according to the chief economist of the Czech Banking Association, Jakub Seidler, due to today’s resumption of Škoda Auto production, the situation in domestic industry could slightly improve again. “However, growth will continue to be hampered by long subcontracting times, a shortage of materials and rising energy prices,” he said.