April 2, 2012 / 10:19 AM / in 6 years

Emerging Europe factories surprise in March, buck trend

PRAGUE (Reuters) - Emerging Europe’s manufacturing sector showed a surprising surge in March, bucking a trend of decline in the euro zone and defying expectations that a slowdown in the car- and electronics- producing region would accelerate.

A crucial part of the European supply chain, Poland, the Czech Republic and Hungary are handcuffed to global demand, declines in which have caused policymakers to slash growth forecasts and look for ways to shore up budget revenues.

But Purchasing Managers Index (PMI) data showed all three had shrugged off PMI falls in Germany and the wider euro zone.

Hungary’s PMI expanded at the fastest rate in 13 months to 56.8, from a revised 51.2 in February, the Association of Logistics, Purchasing and Inventory Management said.

Czech and Polish PMI, compiled under different methodology by Markit Economics, showed slighter but still unexpected rises above the 50-point mark separating expansion from contraction.

The Czech figure hit a six-month high of 52.1, from 50.5 in February, as gains in output and new orders confounded a Reuters poll that predicted a slide to 49.5.

Poland’s manufacturing index ticked higher to 50.1 points, from 50 in February, confounding a forecast of 49.65.

“Hungary and the Czech Republic are surprises that do not fit in to the picture of the other published data,” said David Marek, chief economist at Prague-based Patria Finance.

“It is definitely a surprise in the light of the fact that in the euro zone PMI numbers have been deteriorating.”

The data helped lift the region’s currencies, with Hungary’s forint gaining 0.6 percent. The crown followed with a 0.4 percent gain, and Poland’s zloty climbed 0.3 percent.

Because it taps manufacturers before official industry data is gathered by statistics offices, PMI is a good predicator of actual performance and is particularly important in Hungary and the Czech Republic, open economies where mostly industrial exports account for more than four fifths of all output.


Germany’s manufacturing contracted in March for the first time since December, as demand from China and other euro zone countries - particularly in southern European states struggling under government austerity measures and high joblessness.

But the PMI data further east gave some reason to hope that a slowdown or contraction - the Czechs slid into recession at the end of 2011 - may not be as dire as earlier feared.

That mood has also been helped by developments in the car industry. In Hungary, German carmaker Daimler (DAIGn.DE) is launching production at an 800 million euro plant, while Czech carmaker Skoda aims to almost double output to 1.5 million cars a year by 2018.

Radek Spicar, Vice President of the Czech Industry Chamber, said a survey of Czech manufacturers had shown that worry at the end of last year of a steep double dip had moderated. The Czech central bank expects the economy to stagnate this year.

“We were worried at the end of the last year about how the situation would develop. Companies were rather nervous because they did not know what was going on in the euro zone. They were worried that the second dip in the “W” would be deep,” he said.

“But we did a survey among our members at the turn of the last and this year showing that the situation may not be as bad as many feared. This is due to new orders as industry, the driver of the Czech Republic, is doing pretty well.

Spicar said companies were focusing on increasing productivity and cutting costs, penetrating other markets such as the large emerging BRIC countries.

“And only in the fourth or fifth place was lay-offs. So companies are not really preparing to fire people,” he said.

Both Poland’s central bank and the Organisation of Economic Cooperation and Development have raised their growth outlooks to 3 percent, a slowdown from an expected 4.3 percent in 2011 but higher than the bank’s earlier forecast of 2.5 percent.

But economists still warned that industry was still likely to suffer if other major global economies continue to suffer, with a lag of several months.

“On the one hand it shows that production is still doing relatively OK, but the leading elements of the indicator (orders) suggest caution is needed when forecasting the economic outlook,” said Adam Antoniak, senior economist at bank PEKAO.

Reporting by Michael Winfrey; editing by Patrick Graham

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