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CEE ECONOMY-Hungarian, Romanian second-quarter GDP shines but Polish data a bad omen

(Adds Polish GDP data, analyst comment)

BUDAPEST, Aug 17 (Reuters) - The economies of Hungary and Romania both expanded at a faster-than-expected pace in the second quarter, signalling that Central Europe’s economies still had momentum in April-June, propelled by industries and consumer demand.

The Polish economy, the region’s largest, grew 5.3% year-on-year but that was below forecasts for 6.3% growth in a Reuters poll.

And seasonally-adjusted Polish GDP fell by 2.3% quarter-on-quarter, indicating that a slowdown in domestic demand, rising interest rates, and companies’ surging costs amid double-digit inflation have started to dampen growth.

This is set to lead to a sharp slowdown or even a recession. Economists have been pointing to the risk of a “technical recession”, or two consecutive quarters of contraction, this year in Poland.

“Throughout 2022, GDP growth will not turn negative, but the chances are that the annual dynamics will be negative in the beginning of 2023,” said Piotr Bielski, a leading economist at Santander Bank Polska, who said the disappointing second-quarter figures did not bode well for the outlook.

Hungary’s economy grew by an annual 6.5% in the second quarter, above analyst forecasts for 6.1% expansion, while on a quarterly basis, the pace of growth slowed to 1.1% from 2.1% in the first three months.

GDP growth was driven mainly by industry and services, with a plunge in agricultural sector output dragging on growth.

Neighbouring Romania’s economy grew 5.3% on the year in the second quarter, also above market expectations for 3.5%.

Erste Bank said in a research note: “Assuming no significant data revision, even if the economy stagnates in the second half of the year, full year (Romanian) GDP growth should come in at 7.0%.”

Despite some positive second-quarter GDP figures, the signs of a slowdown are clearly visible across the region.

Manufacturing surveys earlier this month showed that a manufacturing downturn in the Czech Republic and Poland worsened in July.

“We expect a substantial slowdown (in Hungary) in the coming quarters, partly due to base effects and also the negative impacts of the war (in Ukraine),” Gergely Suppan, an analyst at Magyar Bankholding said in a note.

“As a base case, we do not expect a technical recession, but this cannot be entirely excluded.”

Suppan said the Hungarian economy could grow by 5.7% this year. The National Bank of Poland has forecast GDP would grow by 4.7% in 2022 and 1.4% in 2023.

The Czech economy also maintained growth in the second quarter, helped by domestic demand.

But high inflation is beginning to hit home as people’s purchasing power sinks. A sharp slowdown in retail sales and plunging confidence indicators showed that the cost of living crisis has caught up with Europe’s eastern wing. (Reporting by Krisztina Than; Additional reporting by Anna Koper in Warsaw Editing by Toby Chopra)