EEC ECONOMY – Upside surprises in Q1 brighten up prospects for recovery in Central Europe

Central European economies surprised on the upside in the first quarter, data showed Tuesday, with the sector supporting activity through COVID-19 lockdowns and helping to kick-start a recovery that analysts say could be stronger provided that.

Slovakia’s economy grew 0.3% year-on-year after four consecutive quarters of decline, while Romania’s gross domestic product reached pre-COVID levels, said analysts.

In Hungary, where the central bank joined with Czech rate regulators in signaling a possible interest rate hike this year, gross domestic product (GDP) fell 2.3% per year, less than expected, and rebounded 1.9% from the last quarter of 2020.

The Bulgarian economy contracted by 1.8% on an annual basis, a slower pace than the decline in the previous quarter, while the Romanian economy shrank by 0.2%, but posted a quarterly gain of 2.8%, leader in the region.

The preliminary data comes after Poland last week reported a 1.2% year-over-year contraction for the first quarter, while the Czech economy shrank 2.1%.

Capital Economics said Hungary and Romania outperformed the region on quarterly developments and the latter was the most advanced in recovery to date, with other economies still below prior levels. the pandemic.

Only the Slovak and Czech economies slipped on a quarterly basis.

“The conditions are ripe for a strong regional recovery in the second half of this year and into 2022,” he said.

Central European countries, heavily oriented towards the automotive industry, contracted sharply last year after plant closures at the start of the pandemic. The region was hit again in the first quarter by an increase in COVID-19 infections and deaths and as lockdown restrictions hammered the retail and hospitality sectors.

The industry, however, has remained open and factory sentiment is strong, with demand coming from higher levels of the supply chain in Western Europe, even as global component shortages and delayed deliveries affect the costs. Budget support – with elections in sight in some countries – is also on the rise.

The region’s economies are starting to reopen as COVID-19 infection rates slow and vaccinations increase. The surge in consumer demand should come on top of a spike in inflation, for which central banks are on the alert.

On Monday, the Hungarian central bank already signaled a possible rate hike in June. The Czech central bank has also signaled a rate hike this year, with the debate likely also starting in June.

“With such a start to the year, growth of 6% or more could be on the horizon (in Hungary),” said Peter Virovacz, analyst at ING. “It may not be a coincidence that the central bank has started discussing rate hikes.”

ING said its 5.5% growth forecast in Romania “was clearly on the upside”, while Raiffeisen said 7% growth was possible.
Source: Reuters (Reporting by Gergely Szakacs and Krisztina Than in Budapest, Radu Marinas in Bucharest and Jason Hovet in Prague; edited by John Stonestreet, Kirsten Donovan)

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