Conditions in Czech manufacturing sector worst since Aug 2009

The Czech purchasing managers' index (PMI) fell to 47.6 points in May, which shows that business conditions in the manufacturing industry were overall the worst since August 2009, the company Markit Economics said today. In April, the PMI index decreased to 49.7 points.

The level of 50 points in the index marks the difference between growth and fall in activity.

"The period of recession in the Czech economy is getting longer and longer. The data for May, that have been released so far, do not give the weakest hint of stabilisation, but rather the opposite," UniCredit Bank chief economist Pavel Sobisek said.

"In the current situation, it is more and more probable that the (Czech National Bank) CNB will further cut its basic rate this month," Sobisek said.

The drop in industrial production is gaining in speed in the entire Europe and the Czech Republic cannot stand aside, according to the economist.

Sobisek also said it would now be improper optimism to expect stabilisation of GDP in this year's second quarter.

Performance decreased in four out of five components of the main index. Only suppliers' delivery times stayed at the previous levels, according to data of Markit Economics processed for the HSBC bank.

The volume of new orders showed the fastest drop in almost three years, the volume of production stagnated and companies laid off staff, the index showed.

The volume of new export orders dropped for the seventh straight month, showing the fastest fall since July 2009.

"The latest information confirms our expectations that at least in the first half of this year the industry is going to see no fundamental change and improvement (of conditions)," said Confederation of Industry spokesman Milan Mostyn.

"Irrespective of success of some of the companies and a mild recovery of selected branches, the overall situation is not good for now," he added.

He, however, pointed out that the confederation's surveys do not show any significiant workforce cuts.

"Our findings show that enterprises had expected certain cuts in staff numbers in the first half of this year, no dramatic cuts, however, amounting to around 1 percent," said Mostyn.

They expect a more moderate trend in this respect in the second half of the year, he said.

Vaclav Matyas, head of the Czech Association of Building Entrepreneurs, however, said  that firms have to lay off qualified staff as they have no work for them.

"If the government continues the policy of (budget) cuts, the impact on employment levels is apparent and the trend of lowering the number of employees in the entire construction sector will continue," said Matyas.

Karel Havlicek, president of the Association of Small and Medium-Sized Enterprises, said that the biggest problem is the ongoing fall of construction output.

Almost a 10-percent drop in the construction sector for several straigt years is a great threat to tens of other branches, big companies, investors, small and mid-sized companies and also to final consumers, said Havlicek.