Czech industrial production increased for the 13th straight month in July 2014 and at the fastest rate since the start of the year helped by a stronger growth in the key automotive sector. Industrial production grew by 8.6% y/y in July, quickening from a revised 8.3% hike the month before, data from the statistics office showed on September 8. The reading exceeded market expectations for a 6.6% hike.

In seasonally adjusted terms, the output was up by 0.7% from June when it edged up 0.1% m/m.

The auto manufacturing sector continued to be the main growth driver expanding by 46.6% y/y in July, well above June’s rise of 14.8% y/y and registering the strongest annual growth since January 2010. Other sectors that contributed the most to the annual hike were manufacture of rubber and plastic products (contribution +0.8 pps, growth by 11.3% y/y) and manufacture of electrical equipment (contribution +0.7pps, growth by 9.2% y/y).

Overall, the manufacturing industry posted a 12.5% y/y growth in July, accelerating from a 10.3% y/y rise in June. Production in the mining and quarrying industry, on the other hand, continued to contract in July going down by 12.3% y/y after a 2.7% y/y drop the month before. The utilities sector also contracted for the third straight month with the decline deepening to 12% y/y from 2.9% y/y in June.

In the first seven months of 2014, Czech industrial production grew by 6.6% y/y.

Sales from industrial activity advanced by 14.8% y/y, the fastest annual rate in over 3.5 years. The growth in new industrial orders also posted double-digit figures registering a 17.6% hike in July, after a 15.8% y/y increase in the previous month.

IntelliNews comment: The 13th straight increase in Czech industrial output in July 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. South Korean car parts maker Hyundai Mobis also said it will invest up to CZK 4bn in a new Czech plant.

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 16th straight month in August.