Out of five countries in CEE that reported third-quarter GDP figures, three saw their economies shrinking, one barely grew and only one posted relatively healthy growth.
This was “pretty grim reading” and a “gloomy” picture, according to Capital Economics’ chief emerging markets economist Neil Shearing.
“What we can see is worrisome,” Nomura’s strategist Peter Attard Montalto also said, noting that in the three cases, the size of the shrinking took markets by surprise.
Hungary’s contraction surprised on the downside, coming in at 1.5% year-on-year versus consensus estimates of a 1.3% contraction. The Czech Republic’s contraction was 1.5% versus consensus expectations for a 1.2% fall. The two countries were already in recession.
Romania has had no recession yet but it posted its first quarterly contraction of 0.6%; markets were expecting its economy to remain flat. In Bulgaria, the economy grew by only 0.1% quarter-on-quarter.
“Slovakia, by contrast, remains a rare ray of light amid the gloom. Its economy grew by 0.6% quarter-on-quarter, buoyed by increased output in the auto sector,” Shearing noted.
Part of this was due to poor agricultural harvests, which were affected by drought especially in Romania, but “sentiment shock” because of the eurozone debt crisis, deleveraging and tight credit conditions are also affecting the region, according to Montalto.
The eurozone officially fell in its second recession after 2009. Data released on Thursday showed economic output in the single currency area fell 0.1% in the third quarter after a 0.2% drop in the second. France and Germany edged up by 0.2% but their advance was offset by contractions in countries like Austria, Italy, Spain or the Netherlands and by Greece’s depression.
“Slovakia aside, it is clear that the crisis in the eurozone is weighing on Eastern Europe,” Shearing said.
OUTLOOK ‘NOT ROSY’
In Hungary, the outlook for 2013 is “not rosy,” Erste Bank analysts Orsolya Nyeste and Zoltan Arokszallasi said in a market note.
The analysts revised down their forecast for this year’s GDP, expecting it to shrink by between 1.3% and 1.4% from a previous forecast of a 1% fall.
Czech GDP fell by by 0.3% quarter-on-quarter versus expectations of a 0.2% shrinkage.
The weak growth means “the political outlook is likely to be tested yet again,” as the government will need to take additional fiscal adjustment measures, which “would probably lead to threats of no-confidence votes and the stability of the government being brought to the wire,” Montalto said.
Martin Lobotka, an analyst with Ceska Sporitelna, said the weakness in GDP increases the probability of foreign exchange interventions by the Czech central bank to weaken the currency and boost exports. But, he warned, the measure could be self-defeating as a weak currency would make imports more expensive and would depress domestic consumption even further.
In Romania, “we can only assume that agriculture was the main drag on GDP in the third quarter and that the recent deterioration seen in industrial output and construction added to an already grim outlook,” Dumitru Dulgheru, an analyst with the country’s biggest bank BCR, said.
“With the eurozone slipping into recession this year, the Romanian economy will most likely come to a standstill in 2012,” he said.
BCR downgraded its outlook for Romanian growth for next year to 1.1% from a previous forecast of 1.9%.