Czech industrial production increased for the 11^th straight month in May 2014 but growth eased for the second straight month as the key automotive sector expanded at the weakest pace in five months. Industrial production grew by 2.5% y/y in May, slowing down from a 7.7% hike in April, data from the statistics office showed on July 7. The reading was below market expectations for a 5.5% rise.

In seasonally adjusted terms, the output was by 1.5% lower than in April when it edged up 1% m/m.

Despite advancing at a weaker rate than in April, the auto manufacturing sector continued to be the main growth driver expanding by 11.9% y/y in May, following a 16.5% gain in the previous month.

Other sectors that contributed the most to the annual hike were rubber and plastic products (contribution +0.7 pps; growth by 10.9% y/y) and manufacture of fabricated metal products (contribution +0.3pps; growth by 3.9% y/y).

Overall, the manufacturing industry also expanded for the 11^th month in a row in May with the annual growth slowing down to 4.1% from 8.4% in April. The mining and quarrying industry, on the other hand, swung back to a 6.4% drop in May from a 9.8% rise the month before. The utilities sector also contracted - by 5.4% y/y in May, erasing a 2.5% y/y gain in April.

In the first five months of 2014, Czech industrial production grew by 6.1% y/y.

Sales from industrial activity advanced 6% y/y in May easing from 10.3% y/y in April. After growing at a double-digit pace for six months, new orders expanded by 8.7% y/y in May on a softer growth in orders from abroad and a 1.4% fall in domestic orders.

IntelliNews comment: The 11^th straight increase in Czech industrial output in May signals that the economy is gaining strength after exiting a record-long recession in 2013 and is on track to return to a full-year growth in 2014. Last year Czech industrial production edged up by 0.5% from 2012 when it shrank by 1.2%. Rising new orders are a positive sign that the sector will continue improving in the next months driven by growing foreign demand. The growth should be supported by rising auto production with the country being home to 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. 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.

One of the important forward-looking indicators, the Czech purchasing managers index (PMI), also showed that recovery is taking root with the index staying above the 50-point mark that signals expansion in the sector for the 14^th straight month in June.