Czech PMI drops to eight-month low in May

Czech PMI drops to eight-month low in May
Czech PMI drops to eight-month low in May
By bne IntelliNews June 5, 2018

The Czech Manufacturing Purchasing Managers Index (PMI) fell to an eight-month low of 56.5 in May from 57.2 the previous month, according to figures released by IHS Markit on June 1. The PMI was still above the market expectation of 56.2. Any figure greater than 50.0 indicates an overall improvement in the sector.

The data showed the slowest growth in factory activity since August 2017, as output and new orders rose at a softer pace. The pace of job creation was the lowest since October 2016.

“May PMI data signalled a steep, but softer expansion across the Czech manufacturing sector. The overall growth performance was the weakest for nine months reflecting slower increases in output and new orders,” said Sian Jones, an economist at HIS Markit.

Domestic demand was the main driver for the output of Czech manufactures, which also recorded more orders m/m but weaker growth.

The main problems remain the tight labour market and the shortage of workers. The unemployment rate decreased to 3.2% in April, a drop of 0.3 percentage points (pp) m/m in line with market expectations and signalling an even tighter labour market.

“Meanwhile, vendor performance continued to deteriorate amid reports of supplier shortages. Greater demand for inputs placed pressure on supplier capacities and pushed up prices paid for purchases during the month. Although rates of input cost and output charge inflation softened to nine-month lows, they remained above their respective long-run trend levels,” Jones said.

The overall expectation remained strong, despite dropping to a 17-month low.

“The current level [of PMI] still signals a decent improvement in manufacturing conditions. The main driver was the growth of domestic orders. On the other hand, the growth of export orders is slowing down second consecutive month. This is in line with our forecast, which predicts weakening export growth throughout this year,” said Raiffeisenbank analyst Jakub Cervenka.