The data provided by the PMI index for June 2023 for the Czech manufacturing industry indicates that the conditions in this key sector for the Czech economy continue to deteriorate, and the pace of this deterioration intensified in June.
PMI: Update and Consequences for June
The PMI, or Purchasing Managers Index, provides advance indications of what is actually happening in private economic sectors by monitoring changes in variables such as production, new orders, employment levels, and prices. The companies are selected to have a sample that is as representative as possible of the real economy. Respondents are asked to compare the conditions of a certain number of variables to the previous month, determining whether they have improved, worsened, or remained unchanged. Respondents are also given the opportunity to provide the cause that led to the change, thus providing a more comprehensive view of the trend. The PMI index recorded its worst decline since May 2020, dropping from 42.8 to 40.8. The financial market expected an overall decline in the PMI indicator to the level of 41.7.
Furthermore, the month of June also saw a greater percentage decrease in production and new orders. There was a further decline in selling prices and a simultaneous decrease in costs, continuing for two months.
Optimism about production prospects for the next twelve months worsened in June, reaching the lowest level in six months.
The level of 40 points, around which the index has been fluctuating for thirteen consecutive months, is seen as critical because below 50 points, the index enters a zone where it is uncertain to define a direction, whether decline or growth, for the analyzed industrial sector. The survey reveals that the decline in orders, including exports, in the Czech national manufacturing industry in June surpassed the peak of last December, marking new lows and proving to be the most significant in the last 6 months.
According to the survey, the demand remains weak: companies report that their customers are postponing their orders and reducing their investment plans.
Producers are unable to utilize their full production capacity, which, in a situation of declining production and weaker orders, leads to a reduction in employment. In the manufacturing industry, employment decreased for the thirteenth consecutive month in June, and the decline was the strongest since July 2020.
In June, the level of optimism shown by businesses was the lowest in the last six months, and expectations for the next 12 months were negatively revised.
Positive News
Positive news from the PMI survey for the manufacturing industry comes from signals regarding price pressures in this sector.
These pressures are reflected in the price of production factors, which has drastically decreased, reaching the lowest point since June 2009. This has been the sharpest price decline in the last 14 years. Looking at the one-year time horizon, this marks the fourth consecutive monthly decrease. These dynamics have contributed to lowering costs for companies operating in this sector. Unfortunately, selling prices have also been under pressure, with their contraction being the widest since April 2016.
The emerging scenario is driven by the cooling of national manufacturing activity, which, along with the decline in energy prices, eases price pressures in the sector itself.
The decrease in price pressures in the manufacturing industry should be significant news for the CNB (Czech National Bank), as it fits into the picture of a relaxation of inflation in the Czech economy.
Conclusions
The PMI survey for June in the national manufacturing industry indicates an increased rate of decline in activity in this sector of the Czech economy.
Manufacturing activity is also declining in Germany and the Eurozone as a whole, and in this context, it is not surprising that the national manufacturing sector is experiencing a continuous and even deeper decline in production and orders.
The encouraging news is the easing of price pressures in the national manufacturing industry: as already mentioned, according to the PMI survey, not only costs but also selling prices are decreasing.
The decrease in price pressures is consistent with the trend of commodity prices in global markets and the fact that domestic producers face weaker demand, which is also a factor influencing the direction of inflationary pressures, leading to a decrease.
Sources: https://www.kurzy.cz/
Source of images: https://pixabay.com/
Graphic source: https://storyset.com/
