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WRAPUP 1-Polish, Czech industry outlook near 2-year low
October 3, 2011 / 10:26 AM / 6 years ago

WRAPUP 1-Polish, Czech industry outlook near 2-year low

PRAGUE, Oct 3 (Reuters) - Manufacturing in Poland and the Czech Republic grew at its slowest pace since 2009 last month, adding to mounting evidence two of Europe’s economic brightspots since 2008 are succumbing to a global economic slowdown.

The weaker data followed surveys showing industry in the pair’s main export market, the euro zone, had ground to a halt under the weight of a debt crisis while China’s factory sector had contracted.

It poses a quandary for policymakers in the European Union’s eastern wing who, for differing reasons, have little room to counter falling demand and slowing growth with looser monetary policy.

Poland’s index based on a survey of sector purchasing managers (PMI) fell to a 23 month low of 50.2 in September, from 51.8 the previous month, data from Markit showed.

In the Czech Republic, where manufacturing-based gross exports such as cars and electronics account for more than 70 percent of the economy, PMI fell to 52.3, the lowest figure since December 2009. It was down from 52.9 the previous month.

“It looks like industry has stagnated across the region, which given how things have come off the boil in Germany is no surprise. The key issue is, what next? Is it a temporary blip or a new leg down?” said Neil Shearing, an economist at Capital Economics.

“We’d say it will be the latter. Our big concern is the external environment is clearly weakening. Global demand is very soft, and at home there is not much room for policy stimulus.”

Hungary’s Purchasing Managers’ Index , counted under different methodology than the Poles’ and Czechs’, rose to 50.8 in September from 50.1 in August but stayed close to 50, which marks the line between expansion and contraction.

Corresponding surveys showed the factory sector in the 17-nation euro zone came to a standstill in July, while PMI in Germany -- central Europe’s main export market -- also fell to a two-year low of 50.3.

Currencies fell across the region. The Czech crown led losses, falling 0.7 percent by 0915 GMT. The forint was down half a percent and the zloty by 0.2 percent.

POLICY PARADOX

The slowing external sector is compounding weak domestic demand in the Czech Republic and Hungary, whose governments are trying to consolidate budget deficits by cutting costs and raising taxes even as growth begins to falter.

Weak currencies and growing risks that the euro zone crisis may spill into other countries have prevented central banks from responding to the slowdown with interest rate cuts.

Poland’s central bank has halted its rate tightening cycle but is seen keeping policy steady in the near term.

Following an outflow of short-term capital that has pushed the zloty 12.4 percent lower against the euro since July 1, it has also intervened in tandem with the state-run BGK bank to prop up the ailing currency.

Hungary’s central bank faces a similar dilemma. The forint has fallen 5.7 percent per euro in the last three months, and the central bank has said rate cuts may only come in the mid-term after the country’s risk premium declines.

Having shifted from a forecast of rate hikes at the start of next year, the Czechs are also seen holding fire.

Their main rate is already at 0.75 percent -- half of the European Central Bank’s -- and analysts say the bank is resistant to further easing as a result while also questioning whether a cut would spur the economy.

Economists said they now expected growth in the region -- Poland grew 4.3 percent versus the previous year in the second quarter, while the Czechs were up 2.2 percent and Hungary 1.5 percent -- would slow at the end of the year.

“Data in Poland, which is moving around the 50 mark, as well as from Germany, shows that economic activity abroad is getting to the border of recession,” said David Marek, chief economist at Prague-based Patria Finance.

“So the Czech Republic, which is dependent on external economic development, cannot stay too far behind.” (Reporting by Michael Winfrey; editing by Patrick Graham)

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