Industrial production increased 5.7% compared with June but was still 5% lower than last year. The result was less than two percentage points better than the market expected, and the June result was also revised in the direction of a lower decline. Although industrial production continues to lag behind last year, it is clear the post-coronavirus decline in production is gradually being erased more quickly than expected. This is mainly thanks to higher demand from abroad as the recovery in other economies continues. The situation has also improved significantly in the automotive industry, where production was already declining only 0.7% year on year.
The increase in the value of new orders, by roughly 10%, is also good news. Overall, however, the value of new orders in industry decreased 3.6%, mainly due to the engineering and chemical industries, which are still in significant decline. The continuing disruption of supply and demand chains, which is a result of the previous closure of individual economies, hinders the faster revival of the industrial sector. Due to increased uncertainty, there is a lack of demand for capital goods and consumer durables. Thus, Czech industry will most likely decline this year.
July’s foreign trade balance showed good results. In July alone, exports increased 4.9% compared to June, while imports increased even 5.8% mom. The July trade surplus significantly exceeded market expectations. The surplus of CZK13.4bn was more than CZK15n higher in a year-on-year comparison. However, the effect of the coronavirus crisis is of course being seen in this year's results. In the first seven months of the year, the surplus is CZK38.3bn lower. In the coming months, in our opinion, the trade balance will further reduce the loss, and we assume this year's trade balance will reach CZK122bn, i.e. about CZK20bn less than in 2019. In July, trade with the domestic key item of passenger cars revived solidly. The surplus in the balance of trade in motor vehicles was even higher year-on-year at CZK6.1bn. The reduction of the deficit in trade in oil and natural gas by CZK4.7bn made a positive contribution to the overall balance, as well. Both lower imported quantities and lower prices were reflected here.
Construction output fell 10.4% yoy in July. Both production in building construction (-10.7%) and engineering (-9.9%) decreased. Housing construction also disappointed, with the number of housing starts falling 11.3% yoy while the number of completed dwellings decreased 9.3%. There were 1.9% fewer building permits, but the approximate value of these permits increased 20.7%. While the industrial sector has already bottomed out, Czech construction is catching up. For the whole of this year, we expect a decline in the construction sector of 0.6%. Due to the coronavirus crisis, companies are not investing, and there also might be a lack of foreign agency workers who returned home due to the pandemic. Civil engineering will continue to thrive, helped by the record volume of public investment planned for this year, while housing will lag behind. According to our estimate, construction, which tends to lag behind the development of the economy, will not return to growth until 2022.
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