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Czechs Exit Record-Long Slump as Exports Help Revive Poland (1)

August 14, 2013

Czechs Exit Record-Long Recession as Exports Help Revive Poland

The $196 billion Czech economy ended a slump that stretched to six quarters, during which efforts to narrow the budget deficit curbed household consumption, the euro area’s debt crisis harmed export demand and the fall of ex-Prime Minister Petr Necas’s cabinet sparked political uncertainty. Photographer: Martin Divisek/Bloomberg

The Czech Republic exited a record-long recession in the second quarter, while Polish growth accelerated from a four-year low as the euro region halted its slump, boosting demand for eastern European exports.

Czech gross domestic product rose a preliminary 0.7 percent from the first quarter, the statistics office in Prague said today. Poland, the European Union’s largest eastern economy, expanded 0.8 percent from a year earlier, the statistics office in Warsaw said. The numbers exceeded forecasts for growth of 0.5 percent and 0.7 percent from separate Bloomberg surveys.

Eastern Europe is looking to the euro region, its main trading partner, to help reignite growth after government cutbacks curbed spending and investment. Germany and France, the euro area’s two largest economies, expanded more than analysts predicted in the second quarter, helping the region snap six straight quarters of contraction, its longest-ever recession.

“The Czech economy is at the start of a revival, and its strength will be decided mainly abroad,” Petr Dufek, an analyst at CSOB AS, a KBC Groep NV unit in Prague, said in an e-mail. “While the second recession in the past five years wasn’t as dramatic as the previous one, it was twice as long.”

The Czech koruna gained 0.3 percent after the GDP data, trading at 25.799 per euro as of 3:21 p.m. in Prague. Poland’s zloty was 0.3 percent weaker against the common currency at 4.2070.

Six Quarters

The $196 billion Czech economy ended a slump that stretched to six quarters, during which efforts to narrow the budget deficit curbed household consumption, the euro area’s debt crisis harmed export demand and the fall of ex-Prime Minister Petr Necas’s cabinet sparked political uncertainty. The central bank responded by cutting the benchmark interest rate to 0.05 percent last year, what it calls “technical zero.”

Polish growth quickened from 0.5 percent on an annual basis in the first quarter, with the nation notching a third straight monthly trade surplus in June, the first time that’s happened since the data series began in 2000.

Poland’s GDP result “confirms that the economic upswing has finally come,” Warsaw-based BRE Bank SA said in an e-mailed note. “On one hand, consumption is rebounding, driven by the end of the saving cycle, improvement in real income and record-low interest rates. On the other, the doldrums in the euro zone have probably come to an end.”

Hungary, Romania

Elsewhere in the region, Slovakia’s growth accelerated to 0.9 percent from a year earlier, compared with 0.6 percent in the first three months, while Hungary, Romania and and Bulgaria all lost steam on a quarterly basis.

Hungarian growth slowed to 0.1 percent from 0.6 percent, though GDP rose 0.5 percent from a year earlier. A “neutral” performance from industrial production outweighed positive impacts from agriculture and construction, statistician Pal Pozsonyi told reporters in Budapest.

Hungary’s GDP reading was a “negative surprise” and the economy’s performance may have been influenced by weaker retail sales and foreign trade, Michal Dybula, an economist at BNP Paribas SA in Warsaw, said in an e-mailed report.

“With a softer GDP growth and lower-than-expected inflation, the Hungarian central bank’s scope to deliver another 25-basis-point rate cut later this month has certainly increased,” he said.

The forint weakened 0.4 percent to 299.11 per euro by 3:22 p.m. in Budapest.

‘Recovery Path’

Romania’s expansion decelerated to 0.3 percent in the second quarter from 0.6 percent in the first, probably hindered by sluggish demand. That’s less than the 0.4 percent median forecast of six economists in a Bloomberg poll. The leu depreciated 0.2 percent to 4.4359 against the euro.

Bulgarian GDP shrank 0.1 percent from the previous quarter compared with a 0.1 percent advance in the first three months, the first contraction since 2009.

The better-than-predicted data from Poland and the Czech Republic are “a positive sign” for the region’s near-term growth outlook, according to HSBC Holdings Plc.

The “data prove economies have bottomed and are on a gradual recovery path,” Agata Urbanska-Giner, HSBC’s economist for central and eastern Europe, said in an e-mailed note. “The key question going forward is about the pace of recovery.”

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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