Slowdown on the cards for Central Europe as economic sentiment plunges

Slowdown on the cards for Central Europe as economic sentiment plunges
The European Commission’s Economic Sentiment Indicators have fallen across Central Europe in October.
By bne IntelliNews October 30, 2019

The European Commission’s Economic Sentiment Indicators (ESIs) turned south across Central Europe in October, suggesting the economies of the region will slow down from here as a miasma descends.

“October provided firmer evidence that weakness in manufacturing sectors in Central and Eastern Europe is now spreading to consumer-focused sectors,” William Jackson, chief emerging markets economist at Capital Economics, wrote in a note.

ESIs rose in only two of the ten Central European economies and fell in the remaining eight.

Capital Economics predicts that based on the rate of the fall in sentiment the surveys suggest that GDP growth in the region slowed from about 4% y/y in Q3 to 3.7% y/y at the start of Q4.

“Our CEE GDP-weighted ESI dropped to its lowest level since August 2016. It is now consistent with regional GDP growth of about 3.7% y/y (compared with around 4% y/y over the third quarter as a whole),” Jackson said.

The falling ESI scores are consistent with the falling IHS Markit Russia Manufacturing Purchasing Index (PMI) scores that most of these countries have been putting in for the last two months, as bne IntelliNews has been reporting.

Hungary's seasonally-adjusted Purchasing Managers' Index (PMI) fell to 51.8 in September from 52.6 in August, but still above the 50 no-change mark. Poland’s PMI fell 1 point to 47.8 in September, remaining below the 50-point line separating contraction from growth for the eleventh month in succession and is stuck at a six-year low.  Czechia’s PMI is even worse and currently at its lowest level in a decade at a mere 44.9 points.

“Weakness was particularly stark in the Czech Republic, Slovakia and Estonia, whose industrial confidence survey dropped to its lowest level since the aftermath of the global financial crisis,” Jackson added.

“However, there is also now growing evidence that weakness in industry is starting to affect domestic-focused sectors. We noted previously that the surveys for the services sector fell in September – and this continued in October. And the retail trade confidence surveys dropped to multi-year lows in the Czech Republic and Poland this month. Finally, Hungary’s construction confidence survey dropped to a two-year low, suggesting that this sector’s recent boom may have started to fade.”

The European Commission’s Economic Sentiment Indicators (ESIs) 
  Poland Czech Hungary Romania Slovakia Bulgaria Croatia Lithuania Latvia Estonia
July  102.2 103.9 109.4 103.3 93.4 104.8 112.4 109.9 103.2 98.5
August 102.2 104.6 111.8 102.4 97.9 103.9 110.7 111.9 103.6 99.2
September  102.1 103.9 107.2 102.6 100.4 104.7 114.7 111.7 103.9 97.3
October 100.2 102.2 108.2 102.1 95.1 105.6 113.3 111.4 102.6 96.4

Source: European Commission