October 1, 2018 / 10:21 AM / 2 months ago

Slowing growth in CEE manufacturing signals golden days are over

BUDAPEST (Reuters) - Growth in Czech and Polish manufacturing slowed to almost two-year lows in September and Hungarian data also showed a slowdown on Monday, signalling that Central Europe’s fast-growing economies are facing bleaker prospects.

FILE PHOTO: A worker is seen welding the aluminium parts of goals at Interplastic, a Polish manufacturing company who are supplying the football goalposts for the 2018 World Cup finals in Russia, in Chwaszczyno, Poland, May 16, 2018. REUTERS/Kacper Pempel

The region, which has close economic and export links to the eurozone, primarily to Germany, has been booming in the past years helped by loose monetary policies. The Hungarian and Polish central banks still maintain a dovish stance.

But growth of Germany’s manufacturing sector slowed to a 25-month low in September on the steepest drop in new export orders in more than five years, which does not bode well for the eastern economies of the European Union.

As rising uncertainties amid an escalating trade war between the United States and China are taking their toll on the German economy, the latest readings of Purchasing Managers’ indices on Monday showed the Czech PMI reading at its lowest since November 2016 and order growth also at a nearly 2-year low.

Activity in Polish manufacturing barely grew in September as new orders fell for the first time in nearly two years.

The IHS Markit purchasing managers’ index for Polish manufacturing fell to 50.5 in September from 51.4 in August, its lowest level since October, 2016. It came in below a forecast for 51.5 in a Reuters poll.

Hungary’s seasonally-adjusted Purchasing Managers’ Index dropped to 53.8 in September from a revised 56 in August.

The Association of Logistics, Purchasing and Inventory Management said the figure was below an average reading of 57.1 in the past three Septembers.

“The PMIs for Central Europe fell markedly in September. Most notably, the Polish and Czech surveys plunged to their weakest levels since late-2016,” Capital Economics said in a note.

“Manufacturing output has weakened in Germany, and this is starting to feed through to softer industrial activity in Central Europe. This supports our forecast that growth across the region will continue to slow over the coming quarters.”

(Czech, Hungarian, Polish PMIs vs Germany, reut.rs/2ItL7lo)

Germany’s leading economic institutes last week cut their 2018 growth forecast for Europe’s largest economy to 1.7 percent from 2.2 percent.

Hungary’s economy, home to big car manufacturing plants of Daimler and Audi, is expected to slow to 3.5 percent next year and 3 percent in 2020, from 4.4 percent this year according to central bank data.

The Polish economy is projected to slow as well, to 3.8 percent next year from 4.6 percent this year based on central bank data.

The Czech economy is expected to grow at a rate of 3.2 percent this year and 3.4 percent next year, according to its central bank.

Additional reporting by Jason Hovet in Prague, editing by Ed Osmond

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