Analyst: Recovery in Czech industry continues despite Covid-19 second wave

Illustrative photo: ludex2014, Pixabay

Czech industrial production increased by 3 percent in October compared to the previous month despite renewed restrictions started amid a large spike in Covid-19 infections, according to Czech Statistical Office (ČSÚ) data.

Jakub Seidler,  photo: Czech TV

The annual figure was positive for the first time since May 2019, mainly driven by a strong recovery in car production. With lockdowns not hitting factories in the so-called second wave, analysts expect output will maintain some support.

“Czech industry stepped into the last quarter of this year stronger than expected despite the second wave of the pandemic, which pushed many segments into contraction again in October,” Jakub Seidler, chief economist at ING in the Czech Republic, wrote in a flash note.

“This is due to the fact that, unlike during the first wave, carmakers did not shut down. At the same time, domestic industry is driven by the relatively favourable performance of industry abroad.”

The year-on-year decline in industry slowed from -1.9 percent in September (after revision, originally -1.5 percent) to -1.3 percent in October. However, October 2020 had one working day less compared to October 2019, which affected the result.

Illustrative photo: jarmoluk,  Pixabay / CC0

“After adjusting for that, industry actually grew by 1.3 percent year-on-year in October, which is the first growth (adjusted for calendar effects) since May 2019,” Seidler writes.

Car production, which grew around 10 percent in October, was the biggest contributor to this growth (after adjusting for the effect of working days, growth would have been almost 14 percent).

Production also accelerated in other major industrial segments, such as plastics and electrical equipment. However, the year-on-year decline intensified in machinery production, falling almost 10 percent.

“Thus, the overall performance remained mixed and the recovery of industry was mainly driven by the automotive sector, which is trying to catch up after spring outages. Despite a solid October, however, production is still 16 percent lower year-on-year for the whole of 2020,” Seidler writes.

Photo: Didgeman,  Pixabay,  CC0

New orders grew by 5 percent year-on-year in October and foreign orders accelerated by more than 8 percent year-on-year, or more than 15 percent in the case of cars.

Industrial production in neighbouring Germany, a key export market for the Czech Republic, also performed better than expected in October, accelerating by more than 3 percent compared to September. Improving new orders suggests that industry could maintain a decent pace in the coming months.

Industry will thus support the domestic economy in the last quarter of 2020, one of the main reasons the impact of the Covid-19 second wave on the domestic economy will be weaker than in the spring, according to Seidler, who predicts industry should fall by about 7-8 percent for the full year.