CZ: Industrial production could see modest growth this year

In December, industrial production in the Czech economy increased by 1.6% month-on-month. At first glance, this appears relatively positive; however, the data are quite volatile, as production decreased in November by 1.8% m/m. Year-on-year, production was down by 3% (with calendar and seasonally adjusted year-on-year growth at -3.7%). The significant year-on-year decline was also influenced by the base effect, given the high production levels in December 2023.

Overall, we currently perceive the development of the Czech economy as broadly stable. Growth is driven by household and government consumption, as well as foreign trade. However, foreign trade is negatively impacted by weak demand from Germany, which is also reflected in the performance of Czech industry.

This year, there could be a gradual improvement in the development of Czech industry. This will be influenced by the anticipated higher growth of the Czech economy, supported by improved foreign demand. Overall, we expect industrial production to grow by 0.7% this year and around 3% next year. However, risks remain elevated. The main concern is the automotive industry, where the potential introduction or increase of US tariffs on European car exports, or an increase in car imports from China, could lead to significantly lower industrial growth in the Czech economy.

In our view, today's data will not have a significant impact on CNB monetary policy or the koruna's trajectory.