PRAGUE, Aug 1 (Reuters) - The Czech Purchasing Managers'
Index (PMI) dropped to 49.9 in July from 50.7 in June, falling
below the critical 50.0 mark for the first time in almost
five-and-a-half years, Markit Economics and ABN Amro said on
Friday.
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KEY POINTS:
JULY 08 JUNE 08 JULY 07
Purchasing Managers' Index 49.9 50.7 59.5
Output 49.9 50.2 61.8
New orders 50.2 51.3 60.8
(Full table of data...............................[]
- A figure above 50 indicates expansion on the previous month
while a number below 50 signals contraction.
- The headline index has held above the neutral mark of 50.0
since March 2003.
- In July, for the first time in almost five-and-a-half
years, the ABN AMRO Czech Republic Manufacturing PMI, a
composite indicator designed to provide a single-figure snapshot
of manufacturing performance, posted below the critical 50.0
mark to signal a deterioration of business conditions in the
Czech manufacturing sector.
- However, at 49.9, the PMI pointed to a negligible rate of
contraction. Of the five components of the PMI, output and
employment both signalled worsening conditions, with the
remaining three pointing to an improvement.
- Following growth in the previous sixty-nine months,
production in the Czech Republic manufacturing sector was
broadly unchanged in July. At 49.9, the output registered below
the critical 50.0 no-change mark for only the third time in the
seven-year survey history. Where a reduction in output was
recorded, this was linked to weak demand conditions.
- Overall, new business continued to increase at
manufacturers in July. However, the rate of growth was the
weakest in the current period of new work expansion (which began
in October 2002). New export business declined for the first
time in over three years amid reports that the strength of the
koruna had adversely affected demand.
- Rising raw material prices contributed to a further
acceleration in the rate of cost inflation faced by Czech
manufacturers. The input prices rose for the third month in a
row and, at 64.1, posted its highest reading since February.
- Reports from firms indicated that higher oil and transport
prices also contributed to July's sharp increase in costs.
- Employment at manufacturers contracted for the second time
in three months in July. Some firms attributed smaller
workforces to a lack of available skilled staff. However, there
were also reports that scaled down employment rosters reflected
weakening demand conditions.
COMMENTARY:
VOJTECH BENDA, ANALYST, ING BANK
"The data confirmed the consensus in the market that the
Czech economy peaked sometime last year. Growth will mediate and
the economy is in a sort of a slowdown."
JAROMIR SINDEL, ANALYST, CITGROUP
"There is evidence of a gradual decline in industry mainly
reflecting a strong crown lackluster foreign demand and a
smaller rate of consumption in the economy. This suggests
cooling of economic growth.
"We expect economic growth of 4.4 percent this year, so we
expect that this could also jeopordise the fiscal balance."
In our forecast we have stable rates until the end of the
year... We still believe inflation is not behind us."
JAN VEJMELEK, HEAD OF ECONOMIC RESEARCH, KOMERCNI BANKA
"It is not such a surprise. In the past months you can see a
visible trend of deceleration. The manufacturing sector is going
down... in line with the external environment."
"An important fact is the Czech crown is overshot and too
strong... (and when) industrial production is strictly oriented
on exports that is the reason (why the sector is falling)."
NEIL SHEARING, EMERGING EUROPE ECONOMIST, CAPITAL ECONOMICS
"All that points in the direction that these economies (The
Czech and Polish) are going to slow, but if you compare that
with some of the data out of the euro zone, it's nowhere near as
bad. It's still looking like we're in for a softer landing."
"The bigger picture remains that these economies have been
expanding beyond their potential for a while now. It was always
likely that growth was going to slow back."
DEBBIE ORGILL, SENIOR ECONOMIST, ABN AMRO, LONDON
"The manufacturing sector contracted for the fist time in
the current cycle, finally feeling the negative influence of
weaker global growth and a strengthening exchange rate."
"We expect this softer trend to continue into the months
ahead, although hints at early interest rate cuts have halted
the rise in the currency for the time being. However given the
survey still indicates elevated price pressures we feel scope
for early interest rate cuts is still limited."
BACKGROUND:
- Report on last Czech c.bank rate decision []
[] [] []
- May foreign trade figures.......................[]
- May industrial output..........................[]
- First-quarter GDP growth data...[] []
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LINKS:
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- Instant Views on other Czech data []
- Overview of Czech macroeconomic indicators []
- Key data releases in central Europe []
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- Czech money guide <CZK/1>
- Czech benchmark state bond prices <0#CZBMK=>
- Czech forward money market rates <CZKFRA>
(Reporting by Mirka Krufova; Editing by Michael Winfrey)
