Cars have cooled the industry and worse sentiment ahead
Economic commentary by Jaromír Šindel, Chief Economist of the CBA
Prague,9 January 2025 - Industrial production fell for the third month in a row in November, down nearly 3 percent overall during the period. This is not yet fully reflected in the foreign trade data, but further deterioration in industrial sentiment does not suggest an early turnaround. Although the construction sector grew for the second month in a row, it has essentially been stalling in recent months. Unless the resilience of domestic demand, especially household consumption, continues, November's data and output risk a slower economic recovery this year than consensus expects (from 1% y/y in 2024 to 2% this year). The data should be negative for the crown, but it has other worries due to the rise in eurozone interest rates, which is exacerbating the Czech interest rate differential.
November's drop in automotive production cooled the industry
Industrial production fell for the third month in a row (down 2.7% cumulatively and 1.5% month-on-month in November alone). This reflects the trend in manufacturing (-1% MoM in November) due to a nearly 8% decline in automotive production, but due to a more than 20% decline in the more volatile production of other transportation equipment. The worse industrial numbers are not yet feeding through to the overall foreign trade numbers, which saw a slight increase in the surplus to CZK 23bn.
Although industrial production fell by 2.5% year-on-year in November (manufacturing by almost 3%), during the course of this year manufacturing has seen a more significant decline compared to the end of last year: industry -5.1%, manufacturing -5.6%. This is partly linked to strong output growth in late 2023. Thus, we will see significantly worse year-over-year output numbers in late 2024 than we saw for November.
The growth in construction has not yet offset the downturn from the flood end of summer
Construction output recorded solid growth of just under 2% month-on-month in November. Although output rose for the second month in a row, its year-to-date growth is still positive zero with a 2% decline in buildings, while civil engineering construction is up 4.6% over the year. Thus far, construction output is up a weak half-percent quarter-on-quarter from the third quarter, which saw output rise 1.2% after a 3% drop in the second quarter. The construction sector's contribution to GDP growth in the fourth quarter is likely to remain close to zero as in the third quarter after averaging a half-percent increase in the first half of 2024.
Note: We work with seasonally adjusted figures in the text.
