According to HSBC, December Purchasing Managers' Index data for the Czech manufacturing sector indicated a sustained worsening in overall business conditions in December 2011, as new orders fell for a second consecutive month though output remained broadly flat over the month.

The index improved slightly from 27 month low of 48.6 in November 2011 to 49.2, indicating a slower overall contraction of the sector. On a quarterly basis, the PMI averaged below neutrality (49.8) for the first time since Q3 2009 (46.7).

Mr Agata Urbanska economist at Central & Eastern Europe at HSBC said that "The December PMI reading is marginally better than the November one but remains in contraction territory and, accordingly, the focus needs to stay on the downside risks to economic activity in the coming months. New business has fallen for two months running, and the latest contraction was the strongest since July 2009."

The PMI is derived from indicators for new orders, output, employment, suppliers' delivery times and stocks of purchases. One of the key components new orders signaled a faster rate of decline in December 2011.

HSBC said that "New business has fallen for two months running, and the latest contraction was the strongest since July 2009."

New export orders also declined for the second successive month, with firms commenting widely on the crisis in Europe affecting demand for goods. Lower intakes of new work led manufacturers to cut workforces and purchasing further in December. The rate of decline accelerated slightly in the case of employment, while a weaker fall in input volumes was registered.

Mr Urbanska said that "The PMI suggests we will see weaker growth numbers going forward, though. While the Output index jumped back into growth territory in December, the more forward looking components, new orders and employment, deteriorated. Input prices rose moderately in December while firms cut their output prices. A continuation of this trend could undermine corporate profitability."

Despite the overall decline in purchasing activity in the manufacturing sector, suppliers' delivery times continued to lengthen, as they have every month since September 2009. Moreover, the extent of delays worsened, as a number of firms reported shortages of inputs.

(Sourced from www.ceskapozice.cz)