Construction production in the Czech Republic continued to decline for the fourth month in May, down 2.7 percent year-on-year. On the other hand, industrial production rose by 1.4 percent, driven mainly by motor vehicle production. An increase in car exports, together with a reduction in the oil and gas trade deficit, helped the foreign trade balance, which ended in a surplus of CZK 11.8 billion in May, and has been in positive territory since the beginning of the year. This is according to data published today by the Czech Statistical Office (ČSÚ).
The last time the Czech construction sector grew in year-on-year comparison was in January, while the following four months it has been declining. In May, however, the year-on-year decline slowed to 2.7 per cent from 6.4 per cent in April. Output in civil engineering declined by 1.5 per cent year-on-year, while in civil engineering it fell by 5.8 per cent. However, compared to April, construction output increased by one per cent.
According to analysts, the decline in construction output is due to lengthy building permitting and cooling demand for real estate due to high mortgage lending and inflation. “On a year-over-year basis, the entire industry remained in the red for the fourth consecutive month. As suggested by earlier detailed GDP statistics, companies’ willingness to invest this year is more concentrated in machinery and equipment than in construction,” said Petr Dufek, chief economist at Bank Creditas.
Industrial production accelerated to 1.4 percent in May from 1.2 percent in April. But new orders fell, their value dropping 4.4 percent year-on-year, the deepest decline since the summer of 2020. On a month-on-month basis, industrial production increased 1.6 percent.
“The biggest contributor to the slight increase in industrial production was motor vehicle manufacturing, where output also rose month-on-month. Growth was recorded in the production of both automobiles and their parts. Planned shutdowns and lower output of coal-fired power plants affected the decline in electricity, gas and heat production,” said Radek Matějka, director of the ČSÚ’s Department of Agriculture and Forestry, Industry, Construction and Energy.
According to analysts, only car production is keeping the Czech industrial production afloat, while the outlook for the entire sector is highly uncertain due to a decline in orders. “Although May’s industrial figures ended above the market estimate, it is still true that the domestic industry is going through a recession, which is only mitigated by strong car production, where previously unfinished production is being finalised this year,” said Jakub Seidler, an analyst at the Czech Banking Association.
Without the automotive industry, the output of the entire industry would have dropped significantly and the manufacturing industry as a whole would have fallen into a deficit, reminded Bohuslav Čížek, an analyst at the Confederation of Industry and Transport. Further developments will be linked to the cooling demand and may be further affected by a number of potential risks, ranging from the worsening economic situation in the eurozone to component shortages. The Czech economy is now teetering on the edge of recession, he added.
Foreign trade ended in a surplus of CZK 11.8 billion in May. Compared to May last year, the result improved by CZK 39.6 billion. Exports fell 3.3 percent year-on-year to CZK 379.3 billion in May. Imports fell more sharply, down 12.5 per cent year-on-year to CZK 367.5 billion. On a seasonally adjusted basis, exports fell by 0.3 per cent month-on-month. Imports fell by 0.7 per cent compared to April.
The year-on-year improvement in the foreign trade balance was mainly due to a CZK 18.4 billion reduction in the oil and gas trade deficit. Lower prices on world markets and a reduction in the volume of imported raw materials had an impact. The balance was also favoured by a CZK 6.5 billion reduction in the deficit on trade in basic metals and a CZK 6.1 billion increase in the trade surplus on motor vehicles.
According to analysts, foreign trade data show that last year’s CZK 198.1 billion trade deficit was only a temporary issue caused by the energy crisis. This year they expect a significantly better result, but their estimates differ. While Deloitte economist Václav Franče predicts a surplus of around CZK 150 billion, Trinity Bank’s chief economist Lukáš Kovanda says it will be between CZK 5 and 10 billion. Jana Steckerová, an analyst at Komerční banka, expects a foreign trade deficit of CZK 26 billion for the whole year.
Source: ČSÚ and CTK
