February 2, 2015 / 11:42 AM / 3 years ago

WRAPUP 1-Central European factory activity rises sharply in January

(Combines stories, adds quotes, details)

* Polish manufacturing jumps to 11-month high

* Czech manufacturing acceleration beats forecasts

* Firms and consumers benefit from lower oil prices

* Rise in PMI contrasts with weak growth in euro zone

By Marcin Goettig

WARSAW, Feb 2 (Reuters) - Central European factory output jumped in January supported by falling oil prices and rising domestic demand, pointing to a stronger outlook for growth.

The manufacturing PMI in Poland, the region’s largest economy, rose to 55.2 last month, data compiled by Markit and HSBC showed, with the index posting its largest month-on-month increase since early 2012.

Analysts polled by Reuters had expected the PMI to nudge up to 53.0 from 52.8. The 50 mark separates expansions from contractions.

“The size of the PMI increases was very significant,” said Raffaella Tenconi, economist at Bank of America. “This is consistent with our view that central and eastern Europe is on track for a really good year in terms of growth.”

Tenconi said the data supported her forecast for Poland’s economy to expand by 3.5 percent this year, more than last year’s 3.3 percent.

The rise in central European manufacturing was significantly stronger than in the euro zone, the region’s main export market which is struggling with high debt and meagre growth.

Markit said production, new orders and exports all accelerated in Poland in January, leading to stronger growth of employment and purchasing activity.

Poland’s unemployment rate is currently close to a 5-year low and a central bank poll showed companies expect further economic improvement.

Czech manufacturing PMI also expanded more than predicted. The PMI rose to 56.1 last month boosted by stronger demand and falling input prices, the strongest level since July last year, Markit data showed.

OUTLOOK

Central and eastern Europe relies on oil exports and the over 50 percent slide in dollar-denominated global oil prices since July has left more money in the pockets of consumers and firms that they can spend on other goods and investment.

The region’s exporters also benefited from a weakening of their currencies against the dollar. The Polish zloty, Czech crown and Hungarian forint have weakened about 18 percent versus the dollar since last July.

“The (Czech) economy is in a state of recovery with strong domestic demand, while low inflation has been caused mainly by plummeting oil prices -- a net gain,” said Marek Drimal, economist with Komercni Banka in Prague.

Hungary’s PMI, compiled under a different methodology, rose to 54.2 in January, from a revised 50.9 in December, and was above the long-term average of 52 for January.

Analysts said PMI strength reduced chances for more monetary easing in the region.

“At the margin, these data are likely to make central banks a little less dovish,” Capital Economics said.

Poland’s central bank is likely to leave interest rates unchanged next week but will probably deliver one more rate cut in March to counter a prolonged decline in consumer prices, a Reuters poll showed. (Writing by Marcin Goettig; Additional reporting by Jason Hovet; Editing by Ruth Pitchford)

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