Industrial Production in May Worse Than Expected
May’s industrial production figures showed factories slowly getting back to normal operation with a 13.8% increase on the previous month. The scale of the task is, however, revealed by a year-on-year drop of 25.7%. Which exceeded even the most pessimistic forecasts of analysts. Photo credit: Freepik / For illustrative purposes.
Czech Rep., Jul 13 (BD) – May certainly indicates an improvement over April when industrial production fell 33.75%. However, the Confederation of Industry points out that companies that have just resumed production are producing smaller volumes and those that didn’t shut down have fewer orders. They emphasise that ‘Government support and assistance must be effectively distributed so that companies can use it efficiently and survive, for example, with as little redundancies as possible.’ But in some cases this may just be delaying the inevitable job losses and increasing government borrowing in the process.
Some parts of industry have seen even bigger falls with motor vehicles and trailers showing a decrease of 45.2% compared to last year. As stated below sales and orders in the automotive sector have also shown big falls. This is worrying for the economy as a whole as this sector accounts for about 9% of GDP and was struggling before coronavirus due to issues such as emissions regulations and the switch to electric vehicles.
Industrial sales fell 28.8% year-on-year at current prices. Export sales fell 32.7% and sales in the Czech Republic 23.5%. The value of new contracts dropped 34.7% compared to 2019. Orders from abroad fell 36.8% whereas domestic orders were down by 29.7%. The biggest fall came in motor vehicles and trailers, which dropped 48.4%; other weak areas were metal construction and metalworking products (-26%) and production of machinery and equipment (-26%). This indicates that production is going to be weak for the next few months at least and that the return to normal levels of production is going to be slow.
The average number of employees in the sector was 3.6% down on last year. Wages also shrank by 6.1% compared to 2019. This seems positive, but Lukáš Kovanda of Czech Fund points out that ‘the decline in industrial production in the Czech Republic suggests that employment is now being maintained artificially at an even higher rate than expected. The government saves jobs, but does so on debt or taxpayer money. There needs to be a major public debate about how long it is possible to buy time in this way and push back the apparently inevitable noticeable increase in unemployment in the future.’
However, a survey conducted by the Confederation of Industry indicates that at this stage companies are trying to avoid laying off staff. 65% said they are looking to save costs other than wages, 45.3% are looking to a new business model, 38% are intending to diversify their product range and 27% were going to invest more in digitalisation. The onus is on the government to manage the withdrawal of support in a way that gives businesses time to adapt.