Czech, Slovak Growth Drops, Hungary Creeps On

Czech, Slovak Growth Drops, Hungary Creeps On

Two of emerging Europe's biggest economies -- Slovakia and the Czech Republic -- saw their rapid expansions slow in the first quarter, but laggard Hungary showed better than expected numbers in its slow march to recovery, The Guardian reports.

Analysts, who expected the Czech-Slovak drop off, are watching the region for signs that the global slowdown and the export-strong states' appreciating currencies could couple with consumer-pinching inflation to take a bite out of growth.

Regional champion Slovakia's economy decelerated but still showed a blistering 8.7 percent expansion from January to March.

The preliminary data, which did not have a breakdown of individual sectors, was a huge climbdown from the 14.3 percent seen in the last three quarters of 2007, a figure affected by one-off factors.

The Czechs also saw a decline to 5.4 percent in the flash estimate from 6.6 percent growth in the fourth quarter.

Hungary grew 1.6 percent year-on-year growth, surprising analysts who had expected just 1.25 percent. The result was double the 0.8 percent expansion in the previous period.

"While growth in Slovakia and the Czech Republic slowed in the first quarter, it remains above trend," said Neil Shearing, of Capital Economics in London.

"Meanwhile, although the pace of growth in Hungary accelerated, the recovery could be on shaky ground."

Statistics for the 15-member euro zone, also released on Thursday, showed a stronger-than-expected annual expansion of 2.2 percent in the first quarter. It was mainly due to a 1.5 percent quarter-on-quarter jump in Germany, its best economic performance in 12 years.

In March, Czech, Slovak and Hungarian industrial production showed significant drops, mirroring a similar fall in exports.

But the flash growth estimates appeared to shrug that off, and analysts said a "leap-year effect" of an extra working day in February and an earlier-than-usual Easter in March had skewed the output and trade data.

The Slovak growth numbers exceeded the market's 8.5 percent forecast. Analysts explained the huge drop from end-2007 by saying the fourth quarter spike came only after a spate of cigarette hoarding by Slovaks ahead of a January tax hike.

"The sharp slowdown was expected due to large one off factors taking place in the fourth quarter last year," said Raffaella Tenconi, an economist at Dresdner Kleinwort. "On a seasonally adjusted basis, real GDP rose by 9.5 percent."

For the Czechs, market watchers said a jump in inflation to a nine-year high, in part due to one-off government tax reforms, had bitten into consumer demand. That was compounded by tougher government welfare measures and sagging demand in the euro zone.

"We expect GDP growth to slow down to as far as 4.0 percent this year, mainly due to the euro zone growth slowdown," said Jiri Skop, an analyst at Komercni Banka in Prague.
Hungary's statistics office said there were signs domestic growth was recovering from the budget measures that slashed the deficit to 5.5 percent of gross domestic product (GDP) in 2007 from 9.2 percent in 2006.

Analysts were cautiously optimistic but noted that, when adjusted for the number of working days, the economy grew at just 0.9 percent on the quarter, compared with 0.7 percent the previous three months.

"Seasonally adjusted quarterly growth of 0.3 percent could be the more reliable information about growth, which is supporting the view of a slow, gradual recovery," said Gyorgy Barcza at KBC in Budapest.

Poland, the region's biggest economy, will release preliminary first quarter GDP figures on May 30. According to a Reuters poll, the market expects annual growth to slip to 5.8 percent, from 6.1 percent in the previous three months.

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