Czech manufacturing PMI emerges out of the shadows

The PMI coming in below the expansionary threshold has illustrated further weakness in the Czech manufacturing sector. At the same time, the index returned to its upward trend from the beginning of this year, pointing to a gradual path out of the shadows.

Demand conditions were still perceived as challenging, but the panelists glimpsed a ray of light when looking ahead. Overall confidence was at its second highest since April 2022, predominantly driven by hopes of access to new export markets and new product launches. New orders continued in a downturn amid a declining number of employees, but the drop was noticeably softer than in the previous months and quarters.

Overall input price inflation in the industry cooled down. However, the reported pass-through to customers remained strong, with a pick-up in selling prices being the most pronounced since last April. This shows that the medium-term price pressures are not at bay amid the return of consumer spending after a bleak 2023.

All in all, the PMI reading is in line with a gradual cyclical recovery that is supported by an improving export side and vivid domestic consumption, according to the first quarter real GDP data. The renewed real wage growth (exp. 3.7% year-on-year in the first quarter) drives household domestic demand, while the emerging rebound of main eurozone trading partners lends support to exports. In contrast, the extraordinary plunge in fixed capital formation points to some fragility in the recovery for the medium term.