Czech industrial production declined for the first time in 14 months in August reflecting holiday breaks at the country’s key car makers. Industrial production shrank by 5.2% in August, swinging from an 8.6% y/y hike in July, data from the statistics office showed on October 8. The reading defied market expectations for a 2.9% growth, according to a poll by Dow Jones Newswires.

In seasonally adjusted terms, the output was down by 3.6% from July when it edged up by 0.7% m/m.

The auto manufacturing sector, which is the main growth driver, contracted 13.4% y/y in August, following a 46.6% jump in July, which was the strongest annual growth since January 2010. The country is home to car plants run by Volkswagen’s Skoda Auto, South Korea’s Hyundai and Toyota Peugeot Citroen Automobile Czech (TPCA), jointly owned by Toyota and Peugeot Citroen. Skoda Auto, the leading auto producer and also the country’s biggest exporter, used its holiday break in August to prepare for the launch of a new generation of its Fabia model. Last year holiday breaks occurred in July.

Overall, the manufacturing industry posted a 4.5% y/y decline in August, reversing a 12.5% y/y growth in July. The annual decline in the mining and quarrying industry deepened to 13.6% from 12.3% the month before. The utilities sector contracted for the fourth straight month but the decrease softened to 7.6% y/y in August from July’s 12% y/y.

In the first eight months of 2014, Czech industrial production grew by 5.1% y/y.

Sales from industrial activity were by 1.5% lower on the year in August, registering their first decline since June 2013. New industrial orders, on the other hand, continued to increase but at the much weaker pace of 1.4% y/y in August, following a 17.6% hike in July.

IntelliNews comment: The decline in August confirms the industry’s dependence on the key automotive sector but we expect data in the next months to be more favourable as both Skoda and TPCA have announced plans to boost production as they introduce new models on the market. In the longer-term the automotive sector will see the entry of South Korean tyre maker Nexen that plans to invest CZK 22.8bn to build a plant in the country. South Korean car parts maker Hyundai Mobis also said it will invest up to CZK 4bn in a new Czech plant.

The Czech economy exited a record-long recession last year and is heading for a full-year growth in 2014 supported by recovering domestic demand.

One of the important forward-looking indicators, the Czech purchasing managers index (PMI), suggests that recovery is taking root with the index staying above the 50-point mark that signals expansion in the sector for the 17th straight month in September.