Industrial output increased by 8.4% y/y in October following a slow September growth of 1.3% despite the continuing shut-down of the Litvinov refinery. Czech industry continues to be driven by the automotive sector, electric devices manufacturing and the manufacture of machines and machinery. The positive nature of the current production figures are going hand-in-hand with the fact that wages are increasing faster than productivity. The increases in unit-labor costs shows the existence of job market pressures after a significant decline in unemployment rates and it also supports the need to tighten up monetary policy, cool the overheating economy and reduce the risk of a wage-inflation spiral and the risk of an increase in inflationary expectations. Notwithstanding, the crown exchange rate remains an obstacle.
We expect to see the full-year growth in industrial output come in at 8.6%, following last year’s growth rate of 11.2%. Next year, we expect to see a further slow-down in this growth rate related to the slower economic growth anticipated in the EU.