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Analysis: CEE economies growing; recovery remains fragile

MNB

Positive economic metrics across the region indicate overall improvements, although subdued demand means that recovery is tenuous, US-based independent researchers/analysts Moody’s Analytics reported in its latest economic outlook for Central and Eastern Europe...

“There were many positive developments as the Czech Republic and Poland grew faster than anticipated in the second quarter, while Hungary repaid its $25.5 billion IMF loan early despite worse-than-expected economic performance”, said Moody’s Analytics economist Tomas Holinka. “However, fear that the Fed (Federal Reserve) will end quantitative easing has driven up sovereign bond yields and recovery in the region remains fragile.”

Moody’s Analytics notes that Hungary’s economy performed worse than expected and only grew a seasonally adjusted 0.1% over the previous quarter, when it posted 0.7% growth. The rise in real interest rates, despite a record low nominal rate, drags on the country’s fragile recovery. While the inflation rate slowed to 1.6% year-on-year in July, nominal interest rates on new business loans remained above 7%, tightening credit and squeezing fixed investment.

Moody’s Analytics expects the Polish and Hungarian economies to grow by 1.1% and 0.7% this year, respectively, while output in the Czech Republic will drop by 0.7% before returning to growth (1.6%) in 2014.

The Czech economy emerged from a long recession in the second quarter of 2013, as real gross domestic product jumped 0.7% following a 1.1% drop during the first three months. Meanwhile, Poland’s real GDP rose 0.4% in the second quarter, after growing 0.2% in the Q1. Both countries saw exports grow in the Q2, but domestic demand remains subdued because of elevated unemployment and tight credit.

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