Recession hits "pretty grim" EU states in the east

Tue May 15, 2012 5:59am EDT
 
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By Michael Winfrey

PRAGUE (Reuters) - The Czech Republic's economy shrank for the third quarter in a row and Romania fell back into recession from January to March, as the euro crisis and government austerity hammered domestic demand and squeezed exports across central and eastern Europe.

Flash gross domestic product estimates for the European Union's emerging states also showed Hungary had contracted in annual terms for the first time since the height of the global economic crisis in 2009.

The data in all three countries was worse than forecast by economists in Reuters polls, prompting many to say it could intensify debates in those countries' central banks over whether to cut interest rates despite a need to keep investors interested with high risk premiums.

They also warned that the figures had come before early indications of a decline in manufacturing across the region at the start of the second quarter.

"It's pretty grim. The worst part is that it shows output in large swathes of the region was contracting even before the most recent escalation of the euro crisis," said Neil Shearing, an emerging markets economist at London-based Capital Economics.

"So I expect the second quarter is going to be worse."

SLIDING DEEPER

Romania, the European Union's second poorest economy, slipped back into recession, shrinking 0.1 percent versus the previous quarter due to a devastating cold snap and snow storms that shut down production in January and waning demand for its exports in the euro zone.   Continued...