The Czech manufacturing sector fell back slightly in May, with the Purchasing Managers’ Index (PMI) data from S&P Global posting 52.3 points, down from 54.4 in April. The figure was the lowest since October 2020, as production increased only marginally and new orders dropped for the third consecutive month.
"Weak demand from domestic and foreign clients reflected ongoing material shortages, but more broadly, the biting effect of inflation on customer spending," said Siân Jones, Senior Economist at S&P Global Market Intelligence.
Weak customer demand led to the slowest growth in employment since October 2021 and in a third successive monthly decline in new orders in May. The modest increase in workforce numbers helped ease pressure on capacity.
Inflationary pressures were among the strongest on record. "Although the rate of cost inflation eased for the second month running, it remained historically marked. Hikes in fuel, energy, steel, transportation and other key inputs were again passed through to clients as firms struggled to absorb soaring costs," Jones noted.
The respondents confirmed they continued to pass on higher costs to customers. Drop in new sales was the fastest since June 2020. New export orders also went down strongly in 2Q22, at the sharpest pace for almost two years, linked to weaker demand from key export markets.
"Amid some signs that inflation may be peaking, it is hoped that recent hikes in interest rates by the Czech National Bank will help inflationary pressures abate. That said, Czech manufacturers face substantial headwinds through the rest of 2022 which are likely to dent growth momentum further," Jones said, stressing that prices continue to rise markedly, dampening client demand and reducing scope for investment.
Although output expectations towards the year ahead remained positive, concerns regarding unstable supply chains and the Ukrainian war hampered optimism.