Czechia’s manufacturing sector recorded a renewed deterioration in operating conditions in July, despite continued gains in output and new orders, as firms accelerated job cuts and scaled back inventories amid persistent uncertainty, according to S&P Global in a report released on August 1.

The S&P Global Czechia Manufacturing Purchasing Managers’ Index (PMI) fell to 49.7 in July, down from 50.2 in June, signalling a marginal contraction in the sector, below the benchmark 50 no-change mark.

“The weak July manufacturing PMIs out of Emerging Europe suggest that industry remains a drag on regional growth, and we expect that incoming tariffs will keep external demand conditions subdued over the coming months,” Capital Economics said in a note.

“The downturn was only slight,” the report noted, “and much slower than any seen in the period of contraction between June 2022 and May 2025.” Nonetheless, the decline ended a brief spell of stability recorded the previous month.

The contraction was driven in part by a sharper drop in employment. “The rate of job shedding accelerated notably from June and was the fastest since April,” S&P Global said, with firms often citing cost-cutting efforts and a strategy of not replacing voluntary leavers. Demand conditions, while showing modest signs of improvement, remained subdued by historical standards.

Production growth continued into the third quarter, supported by a rise in new orders. Output levels increased at a pace only slightly weaker than June’s 40-month high, and new sales expanded for the second consecutive month, “albeit at only a marginal pace,” the report said. Panellists attributed the rise in orders to “greater client demand and the acquisition of new customers.”

Export demand, however, continued to weigh on overall performance. International orders declined once again in July, particularly from Germany, although the rate of contraction was among the softest in the past three and a half years.

Supply chain pressures re-emerged during the month, as delivery times lengthened amid reports of material shortages and logistics disruptions. Firms faced growing backlogs as a result, with work-in-hand increasing for the fourth consecutive month.

Input prices continued to rise, but the pace of inflation slowed to the weakest level since January. Rising raw material and energy costs were partly offset by lower fees for some inputs. In response, output charges declined for the second month in a row as firms sought to stimulate demand and maintain competitiveness. “The fall in selling prices was... only fractional overall,” S&P Global noted.

Manufacturers also took steps to reduce costs through tighter inventory management. Input buying declined at the sharpest rate in four months, while pre-production inventories fell as companies used materials to meet current orders. Meanwhile, finished goods inventories rose slightly as cancelled orders were moved into storage.

Despite the mixed performance, manufacturers remained broadly optimistic about the future, although confidence slipped to a three-month low. “Hopes of a sustained rebound in demand underpinned confidence,” the report stated, “but geopolitical uncertainty weighed on sentiment.”

Overall, Czechia’s manufacturers appear to be navigating a fragile recovery, balancing modest gains in output with workforce reductions and cautious investment. The July PMI data point to a sector still in transition—stabilising but not yet on a firm growth trajectory.