Central Europe Grows at Fastest Rate in 9 Years

Central Europe’s fastest expansion for nine years and strong growth in Germany spurred the EU’s vigorous economic recovery in the third quarter. The eurozone and the EU grew by 0.6% quarter on quarter, and 2.5% year on year. Germany, the EU’s economic powerhouse, expanded 2.8% year on year.

Other economies were left in the shade by Romania, which grew 8.6% year on year after increased government spending on pensions and public sector salaries stoked a boom in private consumption, Bloomberg reported.

The strong reading from Romania, which was almost three percentage points above expectations, prompted warnings from economists of the need for fiscal and monetary tightening amid fears of inflation and a lack of capacity in the labor market.

There were echoes of Romania’s growth across central Europe which grew at 5.3% year on year, its fastest rate since 2008, according to economists at Capital Economics. Latvia notched up an annual rate 6.2%, and Poland and the Czech Republic 5%.

Richard Grieveson, an economist at the Vienna Institute for International Economic Studies, said: “Core Europe, and especially Germany, is growing strongly, and dragging others with it, especially countries in CEE, which are closely linked into its supply chain.

Piotr Matys, an economist at Rabobank, said that with the exception of Romania, “there are not really any warning signs that the robust economic growth will lead to overheating”. Growth in central Europe was “quite balanced”.

Nonetheless some analysts said the strong growth figures would increase the pressure on central banks to raise interest rates. The Czech central bank has already raised rates twice this year, and Liam Carson, an economist at Capital Economics, expected other rate rises across the region.