Non-Euro Area Central European Economies Show Varying Growth

16.02.2012 07:55

WSJ:The impact of the euro-zone slowdown varied among eastern European Union countries outside the euro zone, depending on the depth of their business links to Germany and their domestic fiscal cuts, fourth-quarter gross domestic product figures showed Wednesday.

Suffering the most were countries such as the Czech Republic, Lithuania and Romania, which posted economic contractions in the three months to the end of December.

The Czech economy suffered because of its reliance on Germany, where it sends more than 18% of its manufacturing exports, the highest in the region. The Czech Republic saw contraction of 0.1% in the third quarter and 0.3% in the fourth, putting it technically into recession.

But data from the start of 2012 bode well for a rebound that already seems to be taking shape, including record sales in January by car maker Skoda Auto, the country’s largest exporter, said Raiffeisenbank economist Vaclav France.

Germany’s economy contracted 0.2% on the quarter at the end of 2011, putting brakes on demand for imports from Central and Eastern Europe.

Lithuania and Romania, which have undergone severe cutbacks in domestic government spending, contracted 0.9% and 0.2% quarter-on-quarter, respectively, in the last three months of last year.

“The outlook for domestic demand across Central Europe is deteriorating due to tighter fiscal policies, soft labor markets and weak credit growth,” BNP Paribas analyst Michal Dybula said.

Countries such as Poland, with its solid domestic consumer spending, and Hungary remained unscathed, though the latter’s situation is somewhat flattered by its lackluster performance a year earlier. Bulgarian and Latvia, which also posted quarterly expansions of 0.8% and 0.4%, respectively, at the end of 2012, show tepid signs of recovery from their earlier doldrums.

Hungary’s economy grew 1.4% on the year in the fourth quarter, beating expectations for a 0.8% year-on-year expansion. Against the third quarter Hungary’s GDP expanded 0.3%. This is despite Hungary’s exporting more than 15% of its manufacturing, the second-highest figure in the region, to Germany.

Takarekbank analyst Gergely Suppan said the quarterly growth data were a very positive development and may signal that Hungary can avoid a technical recession, or two consecutive quarters of negative GDP. Hungary’s GDP contracted in 2009 and grew only marginally in 2010.

Poland, the most populous country in the region, is due to release its fourth-quarter GDP readings next month, and is expected to expand 4.3% on the year and 1% on the quarter. Fueled by consumer spending and infrastructure investment, particularly the road construction in preparation for of the European soccer championships, Poland shows it remains immune to the slowdown in the euro area.

“Since 2009, the first year of the financial crisis, the Polish economy has surprised positively and proven that it’s very resilient to global turmoil,” said Monika Kurtek, an economist at Bank Pocztowy.

Thanks to its size, the Polish economy is one of the most self-contained, with less than 7% of Polish manufacturing exports going to Germany.
By Leos Rousek