Czech industrial production increased for the third straight month in September 2013 and at its fastest pace in more than two years indicating that the economy that exited a record-long recession in Q2 is on track to recovery driven by an expanding auto sector. The output rose by 7.1% y/y in September, following a 1.6% expansion in the previous month, data from the statistics office showed. The reading exceeded market expectations for a 6% growth according to a Reuters poll.

The seasonally adjusted industrial production went down by 2.8% m/m in September, after a 4.7% m/m hike in August. In working day-adjusted terms, the output posted a 2% annual growth. There were two more working day than in the same month of the previous year.

The growth in September was mainly supported by car production as the sector registered its second straight month of a double-digit growth. Other sectors that contributed the most to the annual hike in September were manufacture of fabricated metal products (contribution +1.2 pps, growth by 13.8% y/y) and production of electrical equipment (contribution +1.2 pps, growth by 16.0% y/y). Industrial production declined the most in electricity, gas, steam and air conditioning supply (contribution -0.5 pps, drop by 4.0% y/y), mining and quarrying (contribution -0.3 pps, drop by 8.3% y/y) and manufacture of chemicals and chemical products (contribution -0.1 pps, drop by 4.5% y/y).

Overall, the manufacturing industry expanded for the third month in a row in September growing by 9.4% y/y, much faster than the 2.5% hike in August. The annual drop in mining and quarrying industry softened to 8.3% from 14.1% and the utilities sector swung into a 4% decline in September from a 1.8% yearly rise in August.

Sales from industrial activity advanced by 7.9% in the ninth month of 2013 after expanding by 4.8% y/y a month earlier. New industrial orders also improved for the third consecutive month in September posting a 16% annual rise, the strongest since January 2011 as both domestic and foreign orders increased – by 10.7% y/y and 18.9% y/y, respectively.

IntelliNews comment: The third straight increase in Czech industrial output in September suggests that the economy is on track to recovery after in Q2 it grew for the first time in seven quarters. The recently announced Sept retail sales that grew by 3.7% y/y also point in that direction. Rising new orders are a positive sign that the sector will continue improving in the next months. One of the important forward-looking indicators, the purchasing managers index (PMI), also gives hopes for a recovery with the index showing a continued improvement in business conditions in the country.