Dire first quarter GDP results have left private sector economists scrambling to revisit forecasts for the region, according to a survey by Emerging Markets.
Official government figures showed a 1% fall in GDP for the Czech Republic and a 1.3% drop for Hungary while Romania slid back into negative territory at -0.1% after just one quarter of positive growth.
Economists pointed the finger at anaemic domestic consumption and the backdrop of a worsening crisis in the eurozone. The only bright spots have been Germany within the eurozone and a resilient Poland within the CEE region.
The growing sense of gloom over the region’s outlook is likely to be reflected in the EBRD’s own predictions released today.
Peter Attard Montalto, director at Nomura International, took an axe to his forecasts on the back of the results. He now believes full-year Hungarian growth this year will fall by 1.1%.
That represents a hefty cut from his prior prediction of a decline of 0.6%. He chopped predictions for the Czech Republic, down to -0.7% from a positive 0.9%, and Romania where his predictions slid to -0.9% from 0.6%. He has maintained his prediction of 3% growth in Poland this year.
The drop in lending is already acting as a drag on the region, especially in Romania and Bulgaria, although the European Central Bank’s longer-term refinancing operations helped staunch the flow. “Deleveraging means that negative growth is just going to go on for longer,” he said.
He said banks would be more parsimonious as the situation in Greece intensified. In Bulgaria, some 20% of bank assets are Greek and an exit from the eurozone could even lead Romania to impose capital controls. Montalto also slashed forecasts for 2013 with a full 2% downgrade for Hungary to -0.3%.
Jelena Vukotic, economist at Roubini Global Economics in New York, echoed that pessimism. RGE was already bearish on the region and is now reviewing predictions, which is likely to lead to downgrades.
“We were particularly disappointed by Czech numbers,” she said. “We were already in the bearish camp and were seeing a 0.1% decline. The initial estimate of a 1% contraction is pretty sharp.”
That had left space for monetary easing from the austerity government and the Czech Central Bank would look to cut rates as early as June, she said.
The weak numbers mean pressure is now firmly on Hungary to cut a deal with the IMF and European Union as the country faces up to funding needs. Vukotic predicted negotiations would not be “swift and smooth as Hungary will look to stall as much as it can.”
Michael Ganske, head of emerging markets research at Commerzbank, added to the woeful assessment. “I see more downside risks than upside risks for our forecasts,” he said. “We see a whole new debate over the austerity package that is dragging on sentiment that will have a real impact on growth.”
Agata Urbanska, economist for central and eastern Europe at HSBC, said first quarter data warranted a downward adjustment in forecasts. She has already revised down the Czech Republic from 0.1% to -0.5% year-over-year for 2012. “In Hungary, we were looking for zero growth, but now contraction looks much more likely as well,” she said.