By Jason Hovet
PRAGUE, July 31 (Reuters) - The steep drop in Czech
industrial production slowed in June, prompting economists to
say the crisis-stricken economy may have hit bottom in the
second quarter as its main export markets stabilised.
Output fell 12.3 percent versus a year earlier, beating
market forecasts of a 17 percent fall and much better than a 22
percent drop in May.
Analysts said it could indicate economic data is catching up
with forward-looking indicators that have pointed to a slowing
contraction for the past few months and could sway the central
bank to keep interest rates on hold at its Aug. 6 meeting.
"It was much better than anticipated, although it comes
after a few months of weaker than expected figures. It
reinforces the probability of rates staying unchanged this
month," said Raffaella Tenconi, chief economist at Wood & Co.
Output has dropped by double digits for eight straight
months as the export-driven Czech economy loses foreign orders
for its cars and electronics.
The fall in foreign orders slowed to 8.6 percent in June,
from 27 percent in May, after improving euro zone economic data,
notably in the Czechs' main trade partner Germany.
"I would expect that the fiscal stimulus provided in some
euro zone countries -- especially the car scrapping subsidies --
is helping the Czech economy bottom out," Patria Finance chief
economist David Marek said.
"It looks like the slump is finally at its end in the second
quarter."
GERMANY KEY
German industrial production rose 3.7 percent in May versus
the previous month, the fastest pace in nearly 16 years. The
jump was mainly due to a spike in car sales on the back of a
cash-for-clunkers subsidy.
The Czech Republic's largest exporter, Volkswagen <VOWG.DE>
unit Skoda Auto, which reported an almost 20 percent fall in
first half revenue on Thursday, said its drop in sales slowed
later in the period thanks to the subsidies. []
Analysts say a return of consumer demand in western Europe
is vital for central Europe's export economies to rebound.
Fresh purchasing managers' index data due next week will
also give more clues to whether industry is bottoming out. The
gauge rose to a nine-month high in June, but still was below the
breakeven 50 mark that divides contraction from growth.
The industry data could reinforce the thin market consensus
that the central bank will keep rates on hold at its meeting
next week. According to a Reuters poll, 11 out of 20 analysts
polled expect rates staying flat at a record low 1.5 percent,
with the others betting on a quarter point cut. []
The Czech central bank has shaved 225 basis points from the
main two week repo rate in the past year to buck up the slumping
economy.
The Czech economy shrank a record 3.4 percent in the first
quarter, joining central European neighbours in recession.
Poland, with a consumer base almost four times larger than
the Czech Republic's, has so far avoided economic contraction.
It has also kept its industrial output fall to single
digits, in contrast to the Czech Republic and Hungary, where the
latter's May industrial output fell 22.1 percent year-on-year.
The statistics office will release full details of June's
industrial output on August 11.
*For a TABLE on June industrial data click on []
*For a INSTANT VIEW on the data click on []
(Editing by Toby Chopra)
