Czech and Polish factories shrug off Greek drama, but signs of struggle in Hungary

By bne IntelliNews August 3, 2015

bne IntelliNews -


Central European manufacturing shrugged off, for the most part, the very real worries last month that the crisis in Greece could cause the Eurozone to implode, purchasing managers indices (PMI) released on August 3 suggested. The Czech Republic led the pack as usual in recent months, as its July reading surged to a four-year high, though Hungary looks like it could start to lag.

Despite having the region's heaviest dependence on Eurozone demand to drive its economy - exports to the EU make up over 50% of total overseas sales - the Czech Republic saw manufacturing activity spike in July. Accelerating from an already strong reading of 56.8 the previous month, the country's PMI reading of 57.5 was the highest since April 2011, according to compilers Markit and HSBC.

Poland's PMI - which has been losing a little of it pep in recent months - made a comeback to hit a four month high of 54.5 The 50-point threshold separates expansion from contraction in an index built on several inputs, including new orders, export demand and employment.

The strong advances in the factory data suggests a bullish belief in the region's factories in the wider recovering economy. The expansions appear to have largely dismissed the danger persisting through July that a Grexit would send the Eurozone economy into a tailspin. 

However, the recent state-driven strength of Hungarian factories could be running out of steam. The country failed to keep pace with its Visegrad peers, with its PMI dropping sharply from the 55.1 seen in June to just keep its head above water at 50.0.

That appears to single out Hungary. The Greek crisis aslo looks to have had little impact on German factories, with the supply chain for Eurozone's biggest economy the main driver of demand for Central European exports. The pickup in the regional PMI readings was at least partly due to strengthening new export orders.

"The data suggest that the escalation of the crisis in Greece at the start of last month had little impact on manufacturing in Central Europe," notes William Jackson at Capital Economics. "Confidence at home doesn't appear to have taken a hit, and exports seem to have performed well."

That "confidence at home" looks set to increase, for the time being at least. Czech output growth hit the highest in a year and job creation remained close to survey-record levels.

In Poland, "a slightly weaker rise in output during the month was countered by stronger increases in both new orders and employment," writes Trevor Balchin, senior economist at Markit. "The PMI data suggest that June's official 8.9% year-on-year rise in manufacturing output will be broadly sustained at the start of Q3."

Hungary could be set to struggle after a very strong first quarter that saw GDP growth of 3.5%. Although the country's locally-compiled PMI reading is highly erratic and not regarded as a reliable guide to actual output, the sharp drop in July's PMI is just the latest signal that momentum could be on the wane - a development predicted by many analysts for over a year.

Suggesting there may be something in the PMI result, data out of Budapest on August 3 suggested export growth all but came to a halt in the last two months. According to seasonally-adjusted data from, stagnation in export growth in April was followed by contraction in May. Hungarian industrial production, having sped off at the start of the year, is also showing signs of weakness; output slowed to just 1.5% in May after swelling 6.3% a month earlier. 

Still, while the Hungarian figure pulled Capital Economics' regional reading lower, the Visegrad region is still on target for a robust return of activity in 2015. The result "is consistent with industrial production growth in the region of around 7% y/y," Jackson points out.

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