February 16, 2012
GDP data for the fourth quarter of 2011 released on February 15 revealed the Czech Republic as the first country in CEE to slip back into recession, weighed down by the heavy reliance of its small economy on exports to the Eurozone. Elsewhere, despite positive surprises in both Hungary and Slovakia, analysts still worry the rest of the region could soon follow suit.
Given that both Germany and the overall Eurozone did slightly better than expected - limiting contractions to 0.2% and 0.3% quarter on quarter, respectively - the Czech economy's drop of 0.3% in the last three months of 2011 disappointed. Following a drop of 0.1% in the third quarter, that tips the country back into technical recession.
Analysts at Komercni Banka called the figures a "big surprise given the real data from the domestic economy developed very well in the last few months of last year (industry, construction, foreign trade)." Commentators from several banks express their curiosity to see a breakdown of the figures, which will be available on March 9.
However, whatever the technical aspects, the result is unlikely to improve much in the first half of 2012, KB suggests. "We expect that the economy should drop 0.2% on quarter in the first quarter of 2012 and stay flat in the second quarter. The EMU's economy has been in a recession since the fourth quarter of 2011, German factory orders fell 8% cumulatively between July and November, and a declining trend is visible even in new car registrations in the euro area. The external factors therefore drag on the performance of the Czech economy. In the whole year 2012, we expect Czech GDP to add just 0.1% after a 1.7% rise last year."
Slovakia's growth - at 0.9% the biggest in the EU over the period - backs up the level of surprise, given that it shares the Czech's heavy reliance on exports to t,he Eurozone and weak domestic demand. Capital Economics points out that "once again, no breakdown is yet available, but investment appears to have been a big contributor."
"The most encouraging news," Capital Economics continues, "was that Hungary's economy expanded in the fourth quarter, despite having experienced a near meltdown in its financial markets towards the end of last year. According to a preliminary estimate, GDP grew by 0.3% (down slightly from 0.4% on quarter in the third quarter). We do not yet have a breakdown of the contributions to growth, but it seems that industry and agriculture provided the biggest props, while consumer-facing sectors continued to struggle."
At Erste however, they're more wary. "The [Czech Statistical Office] says that the growth can be attributed to industrial exports and agriculture," analysts from the Austrian bank write. "This reason is somewhat strange in our view; the trade surplus actually fell in yearly terms, while agriculture was negatively affected by the drought in the autumn (albeit the base was very low). We also think, based on the retail trade figures (up 0.6-1.1% on year in October and November), that household consumption could also have been a positive contributor to growth. Investments could also have performed better than earlier due to the slowdown in the fall of construction output."
Poland has yet to release figures, but as the biggest and most robust economy in Central Europe, with lesser dependence on exports thanks to healthy domestic demand, analysts express hope that it will push the region's overall growth higher. With the added bonus of a relatively healthy banking sector, suggests Capital Economics, Poland "should remain a relative outperformer. Nonetheless, even here we doubt that growth will be strong enough to bring down the unemployment rate."