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Czech Economy Signals Worse May Be Over in Recession

Czech manufacturing data improved in February, another signal the country’s longest recession on record may be bottoming out.

The HSBC Czech Manufacturing PMI rose to an 11-month high of 49.9 points, from 48.3 points in January, the bank said today in a report compiled by financial-information company Markit. A result above 50 signals an improved performance in manufacturing, while a figure below signals deterioration. The February composite economic-sentiment indicator showed the best reading in eight months, the Statistics Office said Feb. 25.

The economy has contracted for four quarters as austerity measures curbed spending by households and companies while the euro-area crisis damped demand for exports. Policy makers in Prague are debating whether the recession, which is taming inflation, warrants more policy easing through koruna sales after cutting borrowing costs to effectively zero in 2012.

“It seems that the worst is indeed over for Czech manufacturing and the economy in general but this still must be confirmed by improving confidence in the months to come and particularly by hard data on industrial output, exports or retail sales,” Radomir Jac, chief analyst at Generali PPF Asset management in Prague, said in an e-mail today.

The Czech koruna gained 0.1 percent to 25.636 to the euro as of 10:29 a.m. in Prague. The yield on the 5-year government bond fell one basis point, or 0.01 percentage point, to 1.02 percent today, according to generic data compiled by Bloomberg.

New Orders

New orders increased for the first time since March 2012, although marginally, while output was flat, the HSBC said in the PMI report today. Manufacturers continued to cut workforces and purchases of new inputs, however, and cost pressures remained strong, it said.

The Czech Republic is “at the start of a gradual return to normal economic conditions” providing the euro-area crisis doesn’t escalate further, central bank Governor Miroslav Singer said in a Feb. 28 presentation posted on the bank’s website.

“Czech GDP may stabilize in the first quarter of 2013, that means it may remain flat on the quarter-to-quarter basis and start to gradually recover since the second quarter of the year,” Jac said.

The Ceska Narodni Banka, which targets inflation, cut its economic forecasts for 2013 as the government’s austerity measures continue to damp demand. The bank sees the 2013 gross domestic product contracting 0.3 percent, compared with a previous estimate of 0.2 percent growth.

GDP shrank 0.2 percent in the final three months of last year, marking the fourth consecutive quarterly decline, according to preliminary data.

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