Czech PMI dropped below 50.0 for the first time since July 2016

Czech PMI dropped below 50.0 for the first time since July 2016
Czech PMI falls below 50 to 49.7 in December, lowest since 2016
By Nelly Tomcikova in Prague January 7, 2019

The Czech IHS Manufacturing Purchasing Managers Index (PMI) declined to 49.7 in December from 51.8 in November, the weakest growth since July 2016 indicating a fractional contraction in operating conditions across the goods-producing sector, according to a report from IHS Markit on January 2. The market had been expecting a PMI of 51.80.

“In comparison to the strength seen at the start of the year, the Czech manufacturing sector is ending 2018 on a disheartening note. December data signalled a deterioration in operating conditions, driven by falls in both output and new orders. A knock-on effect of lower client demand was muted business confidence, exacerbated by ongoing trade tensions and difficulties in the autos sector,“ said IHS Markit Economist Sian Jones.

The fall in the manufacturing sector was linked to a decline in production and new orders, second consecutive monthly drop. Decrease in new business accelerated with the rate of contraction accelerating to the fastest in six years, led by a sharp downturn in new export orders. Reflective of weaker demand conditions, business confidence was the second-lowest since December 2012.  

Downturn resulted from ongoing issues in the automotive sector and a drop in customer demand. Czech manufacturers experienced a sharp drop in new export orders, the fastest in nine-and-a-half-years, which was generally linked to trade wars.

Goods producers indicated a softer rise in output charges in December. Factory gate prices increased at the slowest rate since August 2017. Input price inflation was marked overall but also eased to a 16-month low. A number of firms commented on higher energy and raw material costs.

“Although rates of employment and backlog growth accelerated, this was reportedly due to more labour-intensive production processes rather than greater client demand,“ Jones added.

More time-consuming and labour intensive production processes meanwhile drove further increases in employment and backlogs. Firms also noted rising efforts to supply of raw materials and finished goods. Business confidence remained muted in December, with firms reporting concerns surrounding global trade tensions and lower customer demand. The level of optimism was the second-lowest since 2012, just behind November's recent low.