Tim Gosling in Prague -

Overall, Central European manufacturing pulled itself out of contraction in July, according to the latest July purchasing managers data released on August 1. With results showing improvement across the board, it suggests the region remains reasonably resilient to the worst of the Eurozone crisis for now, though the continued slowdown in the lynchpin German economy remains a huge red flag.

The HSBC report recorded a weighted PMI average for Central Europe at 50.0 (49.1 in June). That sits it on the cusp, with 50 the mark separating expansion from contraction, a significant improvement from June. The contrast with the Eurozone is clear, with the single currency area's PMI revised down to 44.0 for the month from a flash estimate of 44.1. How long Central Europe can keep that up considering its high dependence on German industry, which fell to 43, remains a huge question.

The region's largest, and most robust, economy Poland saw a rise to 49.7 (from a disappointing 48.0 in June), a result Capital Economics calls a "modest but still positive surprise... while in theory at least this leaves the index below the crucial 50-mark, in practice a reading of around 48 has proved to be the critical threshold" dividing contraction and expansion.

Analysts at RBS were also buoyed somewhat by the result, notably that the employment sub index rose to the highest level since February 2011, while also pointing out "the trend in the orders to inventories ratio appears to have bounced back having come close to parity," suggesting companies are feeling confidence enough in future orders to secure stock.

Perhaps more relevantly, Capital Economics notes that the National Bank of Poland remains the only central bank in the region with significant room for manoeveur, given interest rates at 4.75% following a 50-basis-point hike in May.

The Czech central bank may be able to offer a little stimulus also given the protection its tight fiscal stance offers the currency, but with rates already at a record low of 0.5% following a 25-bp cut earlier this month, the scope is clearly limited.

That leaves the Czech economy, which lacks the domestic demand of Poland, watching its export-facing manufacturers struggling for momentum, which in turn already saw the country slip into technical recession in the first quarter of 2012.

The Czech manufacturing PMI for July remained in contraction for the fourth consecutive month, but also saw an upturn, moving from 48 to 49.5. "Looking at the breakdown," RBS notes, "worryingly only one out of the 11 sub components posted a month-on-month improvement in July."

"The new export orders sub index continues to remain weak at just 47.9, perhaps reflective of poor economic conditions in core Europe. This continues to be a concern, given that exports to the Eurozone are the main driver of the economy," RBS adds. In addition, the orders to inventories ratio is moving in the opposite direction to that in Poland, "with the ratio currently at parity, as inventory build up looks to overtake demand."

Hungary's central bank has little room to ease monetary policy either, despite the highest rates in the EU, due to its vulnerabilities via state debt and the currency. At the same time, while July's PMI reading recorded expansion for the manufacturing sector for the third straight month - coming in at 51.9 to follow up the 52.8 it saw in June - questions remain, as they ever do in Hungary these days. On the one hand, output data has proved highly erratic this year, meaning most take it with a pinch of salt. On the other, the new Mercedes plant in Kecskemet is still swinging into full operation, giving the indicator a one-off boost.

"The fact that manufacturing in Emerging Europe has so far skirted the worst effects of the euro-zone crisis is clearly good news," Capital Economics sums up. "Whether this can continue is, however, another matter. Against [the Eurozone/German] backdrop, it is difficult to escape the conclusion that regional growth is likely to slow sharply over the coming months and quarters."