August sentiment signals stronger growth, less inflationary pressures in services prices, but also worse news for the labour market
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
Economic sentiment in August returned to the better position seen in June and represents a positive risk of a stronger recovery than forecast for GDP in Q3 (+0.3% qoq). This is thanks to better prospects in services and trade (but below the long-term average here) and a slight improvement in construction. This was partly offset by weaker consumer sentiment (now slightly below the long-term level), accompanied by a continued stalling in the case of industry.
A sectoral view on sentiment may provide a positive boost to the monthly numbers. The improvement in services sentiment is good news as services sales eased in Q2. This is also true to a lesser extent for construction. The industrial overshoot contrasts with better sentiment in the industrial sector to the west, but also contrasts with the more resilient industrial production numbers (see Chart 3). Worse household plans for major purchases, despite a slight deterioration, provide a positive impetus for further improvement in business sentiment (see Chart 4).
August sentiment signalled a confirmation of easing inflationary pressures in services (see Chart 5), i.e. a return to the positive trend seen in June. This, together with a stronger koruna, could send a dovish signal to the CNB and thus not rule out the possibility of another, probably final, CNB rate cut below 3.5% next year.
August sentiment does not signal relief for the recent rise in the registered unemployment rate to 4.5% in July. Sentiment in services brought a deterioration in employment expectations, which is also evident in trade. Employment expectations in industry remain weak.
See key charts below and more also on the CBA Monitor.
Note: Unless otherwise stated, we use seasonally adjusted figures in the text. Annualized developments show possible year-on-year growth in the annual outlook if current month-on-month dynamics were to be maintained.