Central European manufacturing enjoys German boost

By bne IntelliNews April 1, 2015

Tim Gosling in Prague -


Forward looking data released on April 1 offered more evidence that Central Europe's economies continue to gain strength. Purchasing Manager Indices (PMI) for March extended their strong start to the year, pointing to robust growth in the region's vital manufacturing sector on the back of increased momentum in the Eurozone,  particularly in Germany.

Heavily orientated to manufacturing exports, the economies in the region were stressed in 2014 by the sluggish recovery in the Eurozone. Diminished demand out of Russia and Ukraine has not helped, especially in Poland. However, industrial activity has been improving in recent months. 

Central to that is an uplift in the single currency area. The Eurozone's PMI, compiled by Markit, came in at a 10-month high of 52.2 in March, up from 51.0 in February. It has now remained in expansion territory above the 50-point threshold since July. The German index rose to 52.8 as production and new orders growth surged to 11-month highs, supported by the steepest gain in new export business since July.

"Looking at the breakdowns of the surveys, there was an encouraging pick-up in the new export orders components, which suggests that strengthening German industry is boosting demand," suggests William Jackson at Capital Economics. "Overall, these data suggest that industrial production growth in Central Europe will level off at around 8% y/y over the coming months."

Currency boosts

Playing an important role in the German supply chain, manufacturing in the Czech Republic, Hungary and Poland followed suit. On top of the boost from the ECB, monetary policy both at home and abroad also appears to have offered momentum to the region's performance.

In the Czech Republic, which has led the region's PMI performance for much of the past 16 months during which the central bank has held a cap on the koruna, the reading rose to 56.1, up from 55.6 in February. Maintaining the strongest links to German manufacturing of the trio, the Czech sector saw rates of growth of new orders, employment, purchasing activity and stock all accelerate. 

The March reading topped off an impressive first quarter. "The Czech manufacturing sector has seen strong growth throughout the first three months of the year, with one of the highest PMI readings on a quarterly basis of the past four-and-a-half years," notes Trevor Balchin at Markit. "PMI output data for February and March suggest that the 5.5% official year-on-year growth rate of industrial output seen in January … will be broadly maintained."

It's a similar story in Poland, albeit the currency story is based far from Warsaw. While the zloty has been buoyant against the euro since the ECB programme ground into gear, the US Federal Reserve's slow slide towards a rate hike has led the Polish currency to lose ground to the US dollar. 

With the most diversified export base, that helped Poland's PMI reading to 54.8. While that represents a slight pullback from 55.1 in February, the average over the first quarter as a whole was the highest in a year, and the second-highest since late 2010. "The weaker zloty against the dollar helped exporters, as new export business rose at a faster rate," notes the Markit report, which is produced in collaboration with HSBC.

Lastly - and probably least given that the locally-compiled data are a less reliable guide to actual industrial output - Hungary also rounded off a strong start to the year with PMI at 55.6, the Hungarian Association of Logistics, Purchasing and Inventory Management reported. 

The reading - which pushed higher from February's 55.0 despite the forint's recent strength against the euro - is the highest for the month of March since 2007. It means the index is sitting above the 50-point threshold for a twentieth straight month. The new orders index also showed a strong gain.

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