Czech confidence declined in March

Household confidence continued to decline in March, reaching its lowest level since mid-2016. Although households were increasingly worried about slowing economic activity in previous months, assessments of their own financial situation remained positive. However, continued worries about the economic slowdown have started to weigh on sentiment, and households' concern about their own financial situation has reached the lowest level since mid-2017.

Business confidence also decreased in March, driven mainly by weaker sentiment in industry and services, while confidence in construction rose further. The decline in confidence in both industry and services was driven mainly by worries about future developments, while the assessment of the current situation has not changed much compared to February.

Domestic confidence largely followed developments abroad in March and confirms that the situation abroad remains challenging. A further decline in Germany's Manufacturing PMI this month does not bode well for Czech industry. The participants in the German PMI survey pointed out that lower orders were due to both weaker demand from the automotive sector and clients postponing decisions due to higher uncertainty. Uncertainty surrounding Brexit and the escalation of trade wars is beginning to have clearer negative consequences for economic activity.

Although household confidence is the weakest in the last two and a half years, it is still at a relatively favourable level from a longer-term perspective. Households continue to benefit from rising wages and the overheated labour market, and this year, household consumption should be one of the main growth drivers of the domestic economy. However, a prolonged period of uncertainty could raise concern further and reduce consumers' appetite to spend, which represents a clear risk for the future outlook.

Today’s indicators underline the current uncertainty about the future economic outlook, which should encourage the central bank to remain on hold this Thursday, as we noted in last week's CNB Preview.