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Industry as well as export performance relies on car manufacturing

Company: Komerční banka, a.s.

Industry in February slowed sharply to 2.7% yoy in line with expectations. Due to the extraordinary calendar effects (last February had both an additional working day and calendar day), it is better to look at calendar-adjusted indicators. According to these, industry grew 6.7% yoy. According to us, the dynamics of industry mimic February’s weaker car production. However, despite this fact, the automotive industry retained its position as the fastest-growing sector of industry. After the unseasonably cold January, it slightly melted in February and the construction grew 0.3% mom. The external balance lags behind last year’s performance. The solid increase of exports is compensated by rising imports due to higher import prices and higher domestic demand. In summary, February’s data confirm the solid entry of the real economy into this year, in line with our forecast. 

Industrial production slowed in February in line with market expectations and our belief. Due to the extraordinary calendar effects (last February had both an additional working day and calendar day), it is better to look at the calendar-adjusted index. Based on this, industry increased 6.7% yoy and was 0.7% higher mom. The dynamics of industry follow car production, which was weaker in February probably due to adjustments on assembly lines for the new version of the Skoda Octavia by the manufacturer, based in Mladá Boleslav. Despite this, car production retained its position as the key growth driver of industrial production. Another sector contributing positively to production was the distribution of electricity, gas, steam and air-conditioning, even in comparison with the fact that February, unlike January, had above-average temperatures.

Higher temperatures also helped construction, which added 0.3% on a monthly basis. In a yoy comparison, however, it was worse. A decrease of 7% adjusted for calendar effects moderates the results to 5.6%. The negative dynamics of engineering construction, whose yoy dynamics are still suffering from the high comparison base due to investments financed by EU funds at the beginning of 2016, accounts for sector decline. On the other hand, the sector is perhaps awaiting better times. Indicators of future developments such as the number of new building permits (+ 3.8% yoy), their value (+ 13.6%) and the number of newly started flats (+ 23.7% yoy) also grew in February after solid data in January.

The foreign trade surplus in February reached CZK17.9bn, which is about 2 billion less than last year. Despite the decline, the external trade balance with vehicles still shows a solid performance that benefits from demand for these products in the euro area. Conversely, the balance of trade in chemical products is favourable, since two large refineries in the country did not produce during most of last year. The lower trade surplus is not the result of export dynamics, because they benefited from solid demand of German exporters to China, but mainly due to growing imports. It is under pressure from domestic demand as well as rising prices, especially of energy resources.

A situation like February’s will continue to repeat this year. Growing exports will be increasingly offset by rising imports for the above-mentioned reasons. The overall trade surplus, however, is set to be lower this year. In general, all data released confirm the solid entry of the real economy into this year, which is in line with our forecast.

Tags: Economics | Finance |

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