World Economy

CEE States Register Robust Growth

The developing economies stretching from the Baltic to the Black Sea have enjoyed a boom in the first half of 2017 as EU aid funds resumed
Romania leads the pack in economic growth. The picture shows tires being inspected during production  at the Continental plant in Timisoara.Romania leads the pack in economic growth. The picture shows tires being inspected during production  at the Continental plant in Timisoara.

Economies in most of the European Union’s eastern wing exceeded expectations as consumer spending and resurgent investment kept growth ahead of the richer west.

Expansion in Poland, the Czech Republic, Romania and Bulgaria surpassed economists’ estimates, preliminary second-quarter data showed. Romania led the pack, with gross domestic product surging 5.9% from a year earlier. While Hungary was slowest at 3.2%, that still outpaced the euro area’s 2.2%, news outlets reported.

The developing economies stretching from the Baltic to the Black Sea have enjoyed a boom in the first half of 2017 as European Union aid funds resumed, exports rose and consumer spending strengthened thanks to higher wages and government handouts. While living standards in the region will continue catching up with the west, an acute labor shortage and factories running near full capacity may mean rapid expansion can’t last.

“This golden period of strong economic growth in Central and Eastern Europe (CEE) will soon come to an end,” Liam Carson, an economist at Capital Economics in London, said in an emailed note after the release on Wednesday. “Growth is likely to peak in the third quarter as higher inflation and interest rates—coupled with tighter fiscal policy—start to weigh on domestic demand.”

“Strong second quarter GDP figures confirm that Polish monetary authorities are in a very comfortable position,” analysts at mBank said. “Contrary to some CEE economies, like the Czech Republic and especially Romania, Poland is showing no signs of overheating at the moment.”

Romania Shows Best GDP Growth

The best performer of CEE's economies was Romania with a 5.9% annual rate growth in the second quarter, beating market expectations. "We expect private consumption to have remained the main engine of GDP growth on the demand side. On the supply side, the economic growth should have been broad based, as gross valued added should have increased in all sectors of activity with the exception of constructions," noted Raiffeisen Bank's analyst Silvia Rosca, Xinhua reported.

Apart from consumption driver, strong industrial production played a key role in the robust growth of GDP, and services for companies also performed well, while retail sales benefited from the increase in disposable income, explained Eugen Sinca, chief economist at Banca Comerciala Romana (Romanian Commercial Bank).

Czech Revival

The Czech Republic was the fastest growing European Union economy in its quarter-on-quarter terms, with a 2.3% advance as compared with the first quarter of 2017.

"GDP growth rocketed in the second quarter, as the 4.5% annual growth in the second quarter, up from 3% in Q1, surpasses all of the market estimates," noted Jiri Polansky, analyst at Erste Group.

"The growth was influenced mainly by domestic demand, which was supported by the households consumption and private investment," added Polansky.

Poland's Labor Market

Poland's economic growth exceeded the market's expectations with a 3.9% annual rise of GDP, with private consumption broadly expected to remain the pillar of the growth, sustained by a strong labor market, said Katarzyna Rzentarzewska, financial analyst at Erste Group.

Other driver of the Polish economy could be the expected growth of investment into positive territory, as indicated by further acceleration of construction output growth, added the analyst.

Hungary's Slowdown

Hungary's economy expanded at a slower pace in the second quarter, as the annual GDP growth slowed to 3.2% from 4.2% in the previous quarter.

Market-based services were drivers of economic performance in the second quarter, while industry and agriculture contributed to the slowdown, noted the Hungarian statistic agency's short comment.

The slowdown of the Hungarian economy might be the result of a weaker performance of investments, noted Gergely Urmossy, financial analyst at Erste Bank Hungary.

Slovakia Meets Expectations

In the second quarter, Slovakia's economy accelerated, confirming the market's expectations. The annual growth rate was 3.3% in the second quarter, faster than the 3.1% rise in the previous one, fuelled by domestic demand, as consumption and investments slightly accelerated.

"Robust household consumption and Europe's economic recovery are behind the increasing economic growth in Slovakia this year," stressed the analyst of Unicredit Bank Slovakia Lubomir Korsnak.

Meanwhile, Cristian Popa, former vice president of the European Investment Bank, said, the region's robust growth is likely to continue, but the speed may decelerate and each country could face different challenges.


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