* Industrial output up 10.9 pct in April, exports strong
* Retail sales drop faster than expected
* Wage data show continued labour market weakness
* New government measures seen cutting demand
By Jan Lopatka
PRAGUE, June 7 (Reuters) - Czech industrial output raced
ahead in April, driven by foreign demand, but a slump in retail
sales confirmed domestic spending would hold back the central
European country's recovery this year.
Industrial production jumped 10.9 percent year-on-year in
April, above forecasts for a 10 percent expansion, thanks to car
manufacturing and the steel industry, data showed on Monday.
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Hand in hand with output, exports rose by 13 percent,
driving the trade surplus to 15.39 billion crowns for the month,
and foreign orders jumped by 17.3 percent, indicating solid
production in the coming months.
The crown currency edged up to 25.89 to the euro <EURCZK=>
after the data from 25.91 earlier, broadly in line with other
central European currencies. It was helped by rating agency
Fitch's upgrade of the Czech Republic's rating outlook on
Friday, to positive from stable, following the victory of
centre-right parties with a deficit-cutting agenda in last
week's election.
Retail sales, however, fell much more sharply than expected
and wage growth slowed. They reflected the impact of high
unemployment, at just above 9 percent, and highlighted that
consumption is lagging in the economic cycle behind a revival in
manufacturing.
Sales fell 4.5 percent in April from a year earlier,
reversing a 3.8 percent rise in March and worse than a forecast
1.8 percent drop.
Analysts expect domestic spending to improve toward the end
of this year or in early 2011. But no big growth acceleration is
on the cards even then, given the risk that fiscal austerity
measures at home and abroad could have on output.
"All in all, the very rich data set release today shows that
Czech industry has been profiting from still healthy demand in
its key export destinations," said Radomir Jac, chief analyst at
PPF Asset Management.
"But financial markets will be of course asking for how long
this may remain sustainable given first, that western Europe may
lose part of its growth momentum later this year due to the
introduction of fiscal austerity measures."
Fiscal savings adopted by European governments in the face
of worries about servicing their fast-rising public debt could
slow growth around Europe and thus cut demand for Czech exports.
The Czech Republic is likely to follow with its own savings
measures after centre-right parties, which made fighting debt
their key agenda point, won a general election a week ago.
The likely next prime minister, right-wing Civic Democrat
leader Petr Necas, has said he wanted to cut the budget gap to
4.0-4.5 percent next year, from this year's target of 5.3
percent, a faster savings route than the one prescribed by the
outgoing cabinet.
Necas still needs to form a coalition, a task likely to take
at least several weeks. []
The Czech economy is expected to grow by about 1.5 percent
this year and accelerate slightly in 2011, according to official
and analysts' estimates.
Household demand will be a drag on the expansion.
Data showed on Monday the average wage grew by 2.2 percent
year-on-year in nominal terms in the first quarter, the lowest
growth in a decade.
The overall volume of wages paid dropped by 2.4 percent as
employment continued to decline.
"Demand has nothing to grow from," said Helena Horska, an
analyst at Raiffeisenbank.
(Editing by Susan Fenton)
