Purchasing manager indices for the manufacturing sector in Central Europe recorded another strong result in February, according to data released on March 1. The data is just the latest set that suggests a strong start to the year for the Visegrad economies following a disappointing second half of 2016.
The uplift in business conditions in the region shadows strong readings in confidence and activity in the Eurozone – and Germany in particular – which supplies the bulk of the Visegrad economies' export demand.
“Euro area manufacturers are reporting the strongest production and order book growth for almost six years, in what’s looking like an increasingly robust upturn,” writes Chris Williamson at IHS Markit, which compiles most of the surveys. “Companies clearly expect the good times to persist.”
The Eurozone saw a 0.2 point gain to 55.4 in February, the highest level of the index since April 2011. The German reading hit a 69-month peak at 56.8.
Where German industry goes, Central Europe tends to follow. Industrial sectors in the Czech Republic, Hungary and Poland are all led by their role in the supply chain of Europe’s largest economy and exporter.
“The surveys from Central Europe remained strong,” note analysts at Capital Economics. “Our weighted-average PMI for Central Europe (which includes Poland, the Czech Republic and Hungary) increased to a six-year high of 55.8 (compared with 55.3 in January).”
While the Polish reading dropped 0.6 points in February, it was from a strong series of results in recent months, and the reading of 54.2 remains robust, and well above the 50-point threshold separating expansion from contraction. Added to positive data on industrial production in January, the PMI data solidifies claims that Polish industry has escaped the worst of the slowdown seen in the latter half of 2016.
Poland’s PMI readings have been going strong since slowing to near-stagnation in October, and have now remained above the 50-point threshold for 29 successive months. The continued strength in February came on the back of “further expansions of output, new orders and employment”, Markit notes. Increasing price pressure is a concern, but it failed to dampen company optimism.
Production may have fallen to a three-month low, Markit observes, but still it remains stronger than historical trends. That owes to “rising inflows of new work”. Exports also improved, driven by demand from the US and Europe.
If there is anything to blur the picture somewhat, it is price pressure. “The rate of input cost inflation accelerated to the most marked in nearly six years. Greater costs were reflected by firms’ selling prices, which rose at the steepest rate since April 2011,” Markit remarks. Polish PPI surged 4.1% y/y in January, while CPI advanced 1.8% on the year, with little to indicate the rapid growth will subside in the first few months of the year.
The Czech PMI rose further as it continues its recovery from a surprise slip into contraction in the summer. The reading gained a full 1.9 points on the month to sit at 57.6 in February, which mimics the Eurozone reading as the highest level of the index since April 2011.
Output was a key driver, with growth of the sub-index picking up to a pace that was the quickest since May 2014. Reports link that higher production to building inflows of new work. The expansion in new orders was the steepest in over one-and-a-half years. Firms commented on bulk orders from existing customers and new client wins, notably in Germany.
Hungary’s PMI rose by 2.5 points to reach an all-time high of 59.5 in February, the Hungarian Association of Logistics, Purchasing and Inventory Management (Halpim), which compiles the index, said on March 1. After two months of rises, Hungary’s reading has now surpassed the high levels seen during the autumn of 2016, Halpim notes. However the erratic nature of the locally-compiled survey leaves questions over its reliability as a guide to eventual manufacturing output.
Indeed, in the face of the recent strong PMI readings, Hungarian industry slumped back into decline in December, as output decreased 0.5% y/y. While that followed a return to growth in November, the trend through 2016 was erratic and disappointing. The main culprit for the continued poor performance of Hungarian manufacturing has been a slump in the carmaking sector, which has struggled to stabilise output.
“Overall, our aggregate PMI for Central Europe points to industrial production growth of around 8-9% y/y in the coming months,” writes Capital Economics. However, the Hungarian data could yet deflate that forecast.
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