Czech factories boost economy, limiting damage from second pandemic wave

The Czech economy rebounded more than expected in the third quarter and November factory sentiment reached its highest since August 2018, data showed on Tuesday, giving hope that manufacturing can lead a recovery from the coronavirus pandemic. Output rose by 6.9% on a quarterly basis in the third quarter, beating a flash estimate of 6.2%, statistics office data showed.

The Czech economy rebounded more than expected in the third quarter and November factory sentiment reached its highest since August 2018, data showed on Tuesday, giving hope that manufacturing can lead a recovery from the coronavirus pandemic.

Output rose by 6.9% on a quarterly basis in the third quarter, beating a flash estimate of 6.2%, statistics office data showed. Gross domestic product fell by 5.0% year-on-year, a shallower decline than first expected. Consumption picked up in the quarter from the previous three months and exports shot up 26%.

The third-quarter recovery helped balance some of the losses sustained from a national lockdown in the spring. The improvement in November business sentiment could help overcome the second pandemic wave, which struck the central European country harder than the first. The government is allowing the limited re-opening of retail outlets and restaurants on Thursday after nearly two months, as badly hurt retail businesses prepare for the Christmas holiday season.

Factories have been less hurt than in the spring, when many shut down amid supply chain and demand disruptions, leading to a record economic contraction in the second quarter. The sector has rebounded since, with the Markit Purchasing Managers' Index (PMI) rising for the seventh consecutive month to 53.9 in November from 51.9 in October. New orders increased at the fastest pace since July 2018.

"The November indicators confirm the high resilience of domestic industry even in this difficult pandemic situation," said Jana Steckerova, an economist with Komercni Banka, said. "An important role is played by euro zone industry, especially in Germany, where the PMI indices also reach high levels. That benefits export-oriented Czech industrial firms."

The Czech crown posted its biggest monthly gain since 2009 in November amid a global rally on vaccine hopes and, locally, the drop in coronavirus infections in the country. The central bank, which has held interest rates steady since May, forecasts a full-year 7.2% contraction of the economy.

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