Solid February industrial growth but slowing wage growth
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
Industrial production in February showed a surprising 1.5% year-on-year growth (adjusted for working days) and also grew solidly by 1.7% month-on-month. However, I don't see this growth as robust as it reflects the volatile month-on-month rebound in the auto industry after January's decline. Energy growth is also unlikely to continue at the strong pace seen in the first two months of this year. The solid industrial data is slightly undermined by a 0.6% month-over-month decline in construction output after a 1.2% drop in January, primarily due to buildings.
Exports grew at a slower pace in February (0.3% m/m), but have shown solid average growth over the past three months (1.3% m/m), which is also true of imports (1.2%). This has so far translated into a solid improvement in the trade surplus (to CZK 20bn over the past three months, or CZK 33bn after excluding energy).
The slowdown in industrial wage growth to 3.7% y/y may pose a risk to the expected driver of this year's economic recovery in the form of household consumption.
Sentiment in the economy improved slightly in March, including in the industrial sector, and including foreign sentiment (see the third chart in the commentary here). However, Trump's reciprocal tariffs (comment here and here) will represent a significant cold shower for sentiment, at least until the European Union's negotiation/response phase begins.
February industrial production rose by 1.7% m-o-m in February, reflecting a rebound in manufacturing output thanks to stronger production in the automotive industry. Added to this was continued strong growth in energy production, which, together with a low comparative base in this sector, helped to revive year-on-year industrial output growth to 1.7%. However, this surprising year-on-year growth, from the perspective of sentiment indicators, mainly reflects the aforementioned base effect in the energy sector (+16.9% y/y), while the automotive sector (0.5%) and all of manufacturing (0%) are near zero.
The labour market remains negatively impacted by the 2% y/y decline in industrial employment, which is starting to be reflected in softer growth in average nominal wages in industry. Its growth slowed to 3.7% y/y in February from 5.9% in January. Thus, its average nominal growth in the first two months of this year of 4.8% y/y slowed from 6.7% y/y in 2024. Its real growth in the first two months of this year slowed to 2.1% y/y from 4.3% y/y in 2024.
The production numbers follow solid February retail sales, which has signaled 4-5% annualized growth over the past three months, accompanied by even more solid c.8% annualized growth in services sales.
