There is nothing positive about today’s release of industrial production in December. Output steeply fell despite the fact that December had two working days more than the same months in 2007. Without them the output would have dropped almost 20%.
It is not surprising that steel production, car assembly and related industries led the peloton of losers. The main impact came from falling external demand, however, the slump is quickly spreading to the Czech economy and we can suggest that next figures will show that even the domestic demand turned to worse.
The bad news is that there is no light at the end of the tunnel. Orders fall by 11.6% in December. The whole year forecast of the industrial production in 2009 dropped to 7.5%.
The statistical offices added warning that the decline of the industrial production in December indicated a “certain fall” in 4Q GDP. What a surprise! Our forecast points to a decline of GDP by 0.8% q/q and it is skewed to even worse result.
Implication is straightforward: monetary policy would need to pull all its levers and further rate cuts are only a matter of time. Our guess is the key repo rate at 1% in June or July this year.