Polish, Czech manufacturing sentiment strongest since 2018 amid supply issues

PRAGUE, April 1 (Reuters) - Manufacturing sentiment in the Czech Republic and Poland picked up in March, reaching highs last seen in early 2018, with an increase in demand and exports accompanied by supply disruptions caused by the COVID-19 pandemic.

In Hungary, the purchasing managers’ index (PMI) eased in although production increased.

Economies in Central Europe are driven more by manufacturing, rather than services as in Western Europe, and those countries are looking to rebound in 2021 after a sharp economic contraction last year.

The region, though, is suffering its harshest wave of the year-old coronavirus pandemic, leading to persisting lockdown restrictions on retail and hospitality. Industry, though, has buoyed expectations of an economic rebound.

But, like elsewhere, manufacturing faces transport delays, often connected to COVID-19 restrictions, and material shortages. The semiconductor shortage in the car industry is one example.

Czech carmaker Skoda Auto, part of the Volkswagen Group and the country’s biggest exporter, said in March it was managing the shortage “but it will follow us for awhile” and the impact was not visible yet.

In the Czech Republic, the overall PMI figure was boosted by a quicker expansion of workforces and record delays in the delivery times of inputs, IHS Markit said.

Longer delivery times are generally a sign of strengthening demand and so push up the headline PMI reading, though at present they are partly driven by COVID-19 restrictions and transport disruptions.

The Czech figure rose to 58.0 in March from 56.5 in February, IHS Markit’s data showed, the highest reading since February 2018 and well above the 50 point dividing expansion from contraction.

“The manufacturing PMIs showed that supply problems intensified in March, and this continued to push up price pressures,” Capital Economics said.

“While supply disruption also artificially pushed up the headline PMIs, there are also signs from the new orders component that demand conditions remain strong.”

Polish PMI similarly rose to 54.3 in March from 53.4 in February, the strongest overall improvement since January 2018. Hungarian PMI, under a different methodology, eased to 48.7 in March, its second-lowest monthly reading.

The data comes as factory activity in Germany, a key trade partner and European economic powerhouse, grew at the fastest pace on record in March.

Sonia Buchholtz, an economist at employers group Confederation Lewiatan in Poland, said the Polish figure was disappointing in that context.

“We could expect that, keeping in mind the value chains, Polish manufacturing should profit from improving German manufacturing,” she said. (Reporting by Jason Hovet in Prague, Alan Charlish in Warsaw and Gergely Szakacs in Budapest; Editing by Alex Richardson)