WRAPUP 2-Central Europe factory activity gains pace in November

Mon Dec 2, 2013 8:19am EST

Related Topics

* Poland, Hungary and Czech PMIs point to solid growth

* Polish, Czech figures beat forecasts in November

* Czech PMI shows exports benefit from c.bank interventions

* PMIs signal CEE economies likely to strengthen in Q4

By Marcin Goettig

WARSAW, Dec 2 (Reuters) - Manufacturing in central Europe picked up in November, pointing to stronger economic growth in the region in the fourth quarter thanks to rising demand from European powerhouse Germany and a gradual revival in domestic consumption.

Purchasing managers' surveys released on Monday raised expectations that the Czech economy, which has lagged the region, could return to growth this quarter, helped by central bank intervention to weaken the crown.

In Poland, manufacturing activity grew in November at its fastest pace since April 2011 and the data added to signs of a broad-based rebound in central Europe's biggest economy.

Purchasing managers' indexes for the Czech Republic and Poland beat forecasts and factory activity also accelerated in Hungary.

"The (Czech) PMI improvement further into growth territory is a strong signal that the weak GDP number for the third quarter, probably has not marked a return into recession," said Vojtech Benda, chief economist at BHS Securities.

The Czech purchasing managers' index (PMI) jumped to 55.4 in November, its highest level since May 2011, from 54.5 in October and above a forecast of 54.7. Any PMI reading above 50 signals an expansion in activity.

The Polish manufacturing PMI rose to 54.4 from 53.4 a month earlier, according to a survey by Markit and HSBC.

Increased activity in Poland, which accounts for around 40 percent of the region's roughly 940 billion euro ($1.28 trillion) annual output, was driven by strong demand from both domestic and export markets, Markit said.

"Such a significant rise in the index bodes very well regarding the pace of economic growth in the fourth quarter," Piotr Bielski, senior economist at BZ WBK, said.

Poland's economy appeared to be running on all cylinders again in the third quarter with a long-awaited rise in domestic demand and investment helping growth accelerate to 0.6 percent over the previous quarter.

Central banks in Poland, Hungary and the Czech Republic have slashed interest rates to record lows to try and stimulate growth. Hungary is expected to cut rates further, while Poland is seen keeping them flat in the first half of next year.

Central European economies are also benefiting from accelerating demand in Germany, the region's biggest export market. That also makes them vulnerable to any sudden slowdown in German demand or renewed turmoil in the euro zone.

CZECH REVIVAL?

The Czech PMI suggested the central bank's move to intervene to weaken the crown was starting to have an impact as foreign orders rose in November.

The bank launched the first crown sales on the open market in over a decade at the beginning of November to avert deflation and support the economy, which has suffered from tight government spending and political instability and shrank in the third quarter soon after emerging from a long recession.

The crown has weakened by about 6 percent against the euro since early November.

Citigroup said PMI readings for November across the region were "very strong".

"In the Czech Republic, we see a chance that with continuing export-led recovery there will be a positive pass-through from the weaker crown also to domestic demand through an improved labour market," Citi said in a note.

Hungary, which uses a different PMI index released by the Association of Logistics, Purchasing and Inventory Management, reported the index jumped to 52.6 in November from a revised 51.1 in October and beating the three-year average of 51.9.

Production volumes increased from the previous month, while new orders and purchased stocks were also higher. The employment index, imports and exports all increased from October, the publisher said.

"The figures are definitely signalling growth which means Hungarian industrial output is on the right track," said Andras Balatoni, an analyst at ING. "As international demand picks up, that will result in substantial growth in industry output."

Hungary's economy accelerated in the third quarter, growing 0.8 percent on a quarterly basis, after pulling out of recession in the second quarter.

Prime Minister Viktor Orban has been heavily criticised for his unorthodox brand of crisis management that includes Europe's highest bank tax and new levies on some businesses such as energy firms and telecoms.

But he has spared the export-oriented car sector, and his government is betting on a significant boost from car manufacturing to help the economy gather speed by next year, when the ruling party faces elections.

Germany's Audi launched production at a new 900 million euro plant in Hungary earlier this year, giving the sluggish economy a much-needed boost.

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