Manufacturing decelerated to its slowest rate in almost two years in Poland and weakened for the fourth straight month in the Czech Republic in June after weak German orders data signalled Europe's recovery is losing speed. Growth in the European Union's ex-communist states has mostly outstripped the bloc's more developed members since the end of the economic crisis but they now face waning foreign demand for their factory-produced cars, electronics and other goods.
With exports representing 70 percent or more of the economy in both the Czech Republic and Hungary, manufacturing is their key growth driver. In Poland it accounts for 40 percent and plays a crucial part of a 38-million-strong internal market. Poland's Purchasing Managers' Index (PMI), a broad indicator measuring sentiment among producers, eased for a third consecutive month to 51.2 points, data from Markit said. Although still above the 50 break-even-point between expansion and contraction, it was weaker than both the 52.45 forecast by economists and 52.6 reported in May.
Czech PMI slipped to 55.1, from 55.9 in May. Although it was above market expectations of 54.3, it was still the lowest since February 2010, and the PMI index has now fallen four times since hitting a record 60.5 in January. The Czech figure remained above its long-run average of 52.9, and the key components of new orders, output and employment all remained in expansion territory.
"The data confirms that central and eastern Europe is also feeling the effects of this global manufacturing slowdown that we have seen in the past few months, especially in Europe and the US but also in China," said Anders Svendsen, chief analyst at Nordea. "We believe that we could have at least two to three months now with falling PMI numbers from Europe and the US before we see a recovery later in the year. That will also affect the PMIs in central and eastern Europe," he added.
In Hungary, which calculates its PMI under a different methodology, the figure was 54.4, an increase from revised 52.4 in May. Svendsen said the growth may have been due to the domestic recovery in Hungary being behind regional peers, and the manufacturing sector may be getting a boost from the domestic economy. Markets mostly shrugged off the data. Central European currencies rose on relief that Greece had approved austerity measures. Growth in Germany, fuelled by booming demand in Asia and inventory restocking by companies, helped push growth higher than expected in central Europe in the first quarter.
Poland, the region's biggest economy and the only EU state to avoid contraction during the crisis, grew 4.4 percent on an annual basis from January to March. Czech growth was 2.8 percent, and Hungary expanded by 2.5 percent. But government efforts to slash budget deficits in the latter two countries, combined with persistently high unemployment and weak bank lending across the region, have prompted analysts to predict growth may slow later this year.
German manufacturing also fell in June, signalling potential headwinds for producers of finished goods and parts in emerging Europe that make up a crucial link of the euro zone heavyweight's supply chain.
The Czech PMI figures were attributed to new clients, export contracts and renewed sales efforts, Markit said, although the data signalled the weakest increase in new orders received by Czech manufacturers for 16 months. The current sequence of expansion now stretches to 23 months, but the rate of growth has slowed four times in the past five months, it said. Poland's data showed output growth, new orders and new export orders all fell below the 50 mark for the first time since September 2009. "It is visible that the Polish entrepreneurs are affected by a worse situation abroad," said Marcin Mazurek, an analyst at BRE Bank.
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