Today, statisticians published the so-called PMI index, or purchasing managers' index. This is an index tracking conditions in the Czech manufacturing industry. And the result is: Conditions in manufacturing deteriorated again in August. That in itself wouldn't be such a big deal if I didn't add a B to the A - namely that the deterioration has been going on continuously since June 2022. The weak patch is that the latest decline was the slowest in two years. That might only comfort someone who doesn't know how statistics and the statistical base effect works. It is likely that each successive deterioration will be less and less pronounced, but nevertheless the result is clear: Czech industry, once the pride of the Czech economy, is shrinking.
To be specific, the purchasing managers' index did rise to 46.7 points from 43.8 points in July, but new orders fell again. Yet the 50-point level in the index is the leading edge between growth and contraction in the sector. So it is not the case that if the index is higher for August than for June, it means the sector is growing. It is that the sector continues to decline, just not at such a rapid pace. The news that business confidence has "improved" to its highest level in three months could be similarly misleading. But translated, it still means that businesses don't believe in the future, they just no longer anticipate sharp declines in production ahead. Still, firms continued to cut back on spending by reducing their purchases of raw materials, just as they did not keep their inventories too high because they assumed they would not sell out.
It's not just about some intangible trust and distrust. It's about the fact that companies really lack contracts. They don't have anyone to produce for, and they don't dare produce for stock because they don't think they can sell the goods. The low demand is not only from domestic customers, but also from other countries. This is mainly from European countries. Interestingly, demand from some non-European countries has increased slightly. This is worth noting. We know that European goods are becoming uncompetitive on foreign markets because they are overpriced due to climate requirements and social requirements. Yet many Asian and African countries have managed to increase demand for European goods. However, the demand from European countries for European goods has been the greatest. This shows that at this point it is no longer just a question of low competitiveness, but also, and above all, the poor purchasing power of European companies and the population.
I would like to be optimistic, but it is hard to be optimistic where there are no orders. A growing number of orders always precedes the growth of production itself. Here, however, there is no indication that the manufacturing industry will recover by the end of this year. I don't believe so, mainly because the still hugely expensive energy and other green policy regulations are driving up costs for industrialists and not allowing them to breathe. The exchange rate of the Czech koruna is now stagnating just above CZK 25 per euro. It is a holiday in the US, so there is no trading in America, and this supports the calm in the foreign exchange markets, including the exchange rate of the koruna. We do not expect the koruna to gain much traction this week. It will move close to current levels.
Markéta Šichtařová
nextfinance s.r.o. nextfinance.cz
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