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Underlying recovery is still with us

Company: Komerční banka, a.s.

Although we expect the underlying recovery to continue, the data in the Czech Republic are likely to show some weakness in August. We believe that to a large extent this was caused by the holidays. We expect to see the recovery continue in September. The first release of GDP for the third quarter should point to a faster-than-expected recovery. Inflation for September should ease in mom terms but increase in yoy terms due to the base effect.

Industrial output: In August, leading indicators further improved while car production did not. Conversely, we saw a car production 4% decline mom (SA). Industrial output in Poland, which correlates with Czech production, was relatively weaker with a modest yoy improvement to 1.5% yoy after 1.1% in the previous month. August industrial production was probably negatively affected by the holidays. We expect a slight 0.3% mom decline, which would translate to -6.6% yoy after -5.0% in July. After adjusting for the working days’ effect, this would mean about -4.7%, i.e. the same as in July. The improvement of PMI indicates an ongoing improvement in production after the holiday season.  

Retail sales: In August, the drop in car registrations deepened to -33.6% after  9.4% in July. This was only slightly caused by the base effect. After adjusting for the different number of working days and the seasonal effect, we see a car registration decline of 9% mom. Car sales were therefore probably weak, as well. Moreover, the decline in consumer confidence indicates a weaker result for total retail sales. Compared with July, we therefore expect a decline in retail sales both with and without the car segment. However, August sales were likely influenced by the summer holidays. Therefore, we do not see strong implications from these figures.

Consumer prices: We expect the CPI deceleration will continue. For September, we foresee lower prices of fuel and food and a deceleration of core inflation in mom terms to 0.1% (SA). However, consumer prices declined last September, and therefore we will probably see an increase of yoy inflation to around 3.5% yoy.

GDP: The majority of monthly data for the third quarter has not yet been published. But the only the hard data for July such as industrial output, foreign trade and retail sales as well as leading indicators until September indicate that the recovery continued. We expect GDP expanded 4.3% qoq, which would mean a decline of -7.6% yoy after  10.9 in 2Q. That would be well above the CNB forecast of -10.0% yoy.

Author: Michal Brožka

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Tags: Economics | Finance |

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