Czech industrial production increased for the second straight month in August 2013 indicating that the economy that exited a record-long recession in Q2 is on track to recovery driven by a rebounding auto sector. The output rose by 1.6% y/y in August, following a 2.1% expansion in the previous month, data from the statistics office showed on Oct 7. The reading surprised the market that was expecting a 1.3% drop, according to a Reuters poll.

The seasonally adjusted industrial production went up by 4.7% m/m in August. In working day-adjusted terms, the output posted a 4.2% annual growth. There was one working day less than in the same month of the previous year.

The growth in August was mainly supported by car production as the sector registered its first increase in four months expanding by 26.1% y/y. Other sectors that contributed the most to the annual hike in August were manufacture of rubber and plastic products (contribution +0.3 pps, growth by 4.1% y/y) and manufacture of fabricated metal products (contribution +0.3 pps, growth by 2.8% y/y). Industrial production declined the most in mining and quarrying (contribution -0.7 pps, drop by 14.1% y/y), chemicals and chemical products (contribution -0.3 pps, drop by 10.2% y/y) and machinery and equipment (contribution -0.3pps, drop by 3.6% y/y).

Overall, the manufacturing industry expanded for the second month in a row in August growing by 2.5% y/y, slower than July’s hike of 4.1% y/y. The annual drop in mining and quarrying industry deepened to 14.1% in August from 11.2% in July, while the sector of electricity, gas, steam and air conditioning supply posted a 1.8% yearly rise, following a 5.9% y/y drop in July.

Sales from industrial activity advanced by 4.8% y/y in the eight month of 2013 after expanding by 3.7% a month earlier. New industrial orders also improved for the second consecutive month in August posting a 12.3% annual rise, the strongest in one year as both domestic and foreign orders increased – by 6.4% y/y and 15.6% y/y, respectively.

IntelliNews comment: The second straight increase in Czech industrial output in August suggests that the economy is on track to recovery after in Q2 it grew for the first time in seven quarters. Rising new orders are also 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.