East EU manufacturing dips as policymakers respond

Mon Oct 1, 2012 6:58am EDT
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By Michael Winfrey

PRAGUE (Reuters) - Central European manufacturing shrank in September, signaling a deeper than feared recession in the Czech Republic and a slowdown in Poland that economists said authorities should counter with new stimulus measures.

Economic pain has hit government popularity and sent policymakers scrambling across the European Union's emerging east to stave off the effects of the contraction in the euro zone, the region's main export market and a tenuous anchor of stability for its debt and currencies.

Sliding orders from abroad have stalled exports, the main engine for the Czech and Hungarian economies, and prompted consumers and firms across the region to cut back on shopping and investing.

And in the region's biggest economy, Poland, a collection of dismal new data has spurred Prime Minister Donald Tusk to begin drawing up an economic contingency plan after growth there slowed by almost a third in the second quarter to 2.4 percent.

Poland's Purchasing Managers' Index (PMI) fell for the sixth straight month to a worse-than-expected 47.0 points, the worst result since the depths of the previous economic crisis in July 2009.

In the neighboring Czech Republic, PMI fell to 48.0 in September from 48.7 in August, according to the data released by Markit. It was the sixth month below the 50-point barrier separating expansion from contraction.

In both countries, the declines were driven by weak output and new orders, a factor exacerbated in Poland by the end of a 19 billion euro investment project tied to the Euro 2012 soccer tournament and in the CZech Republic by a two-year government campaign to slash spending and raise taxes.

Economists said it would strengthen arguments for Poland's Monetary Policy Council to cut its main interest rate to 4.5 percent on Wednesday, following a similar move in which the Czech central bank cut its main repo rate to a record low 0.25 percent last week.   Continued...

A man works on the production of steel at the ArcelorMittal steel mill in Warsaw November 14, 2008. REUTERS/Peter Andrews