WRAPUP 1-Central Europe factory activity gains pace in November

Monday, 2 Dec 2013 | 5:52 AM ET

* Poland, Hungary and Czech Rep. PMIs point to solid growth

Polish, Czech figures beat forecasts in November

* Czech PMI shows exports benefit from c.bank interventions

* PMIs signal CEE economies likely to strengthen in Q4

By Marcin Goettig

WARSAW, Dec 2 (Reuters) - Manufacturing activity in central Europe picked up in November, pointing to stronger economic growth in the region in the fourth quarter thanks to rising demand from European powerhouse Germany and a gradual revival in domestic consumption.

Purchasing managers' surveys released on Monday raised expectations that the Czech economy, which has lagged the region, could return to growth this quarter, helped by central bank intervention to weaken the crown in a bid to boost exports.

In Poland, manufacturing activity grew in November at its fastest pace since April 2011 and the data added to signs of a broad-based rebound in central Europe's biggest economy.

Purchasing managers' indexes for the Czech Republic and Poland beat forecasts and factory activity also accelerated in Hungary.

"The (Czech) PMI improvement further into the growth territory is a strong signal that the weak GDP number for the third quarter (should it be confirmed), probably has not marked a return into recession," said Vojtech Benda, chief economist at BHS Securities.

The Czech purchasing managers' index (PMI) jumped to 55.4, its highest level since May 2011, from 54.5 last month and above a forecast of 54.7. Any PMI readings above 50 points signal an expansion in activity.

The Polish manufacturing PMI rose to 54.4 from 53.4 a month ago, according to a survey by Markit and HSBC.

Increased activity in Poland, which accounts for around 40 percent of the region's roughly 940 billion euro ($1.28 trillion) annual output, was driven by strong demand from both domestic and export markets, Markit said.

"Such a significant rise in the index bodes very well regarding the pace of economic growth in the fourth quarter," Piotr Bielski, senior economist at BZ WBK, said regarding the Polish figures.

"I believe it is still due to export sectors of the economy, but the revival in the domestic markets is getting increasingly important," he said.

Poland's economy appeared to be running on all cylinders again in the third quarter with a long-awaited rise in domestic demand and investment helping growth accelerate to 0.6 percent over the previous quarter.

Poland's central bank ended a cycle of rate cuts in July. In November it said it would keep rates at current record-low levels until at least the end of next June to support the economy and analysts do not expect it to start tightening policy until the fourth quarter of 2014.


Central European economies are benefiting from accelerating demand in Germany, the region's biggest export market.

The Czech PMI suggested the central bank's move to intervene to weaken the crown was also starting to have an impact as foreign orders rose in November.

The bank launched the first crown sales on the open market in over a decade at the beginning of November to avert deflation and the support the economy, which has suffered from tight government spending and political instability.

The crown has weakened by about 6 percent against the euro since early November.

"Steep growth of foreign orders confirms that it is mainly exports which are contributing to the recovery of the Czech economy," said Vojtech Benda, chief economist at BHS Securities.

The Czech economy bucked the region and shrank again in the third quarter soon after emerging from a long recession.

Hungary, which uses a different PMI index released by the Association of Logistics, Purchasing and Inventory Management, reported the index jumped to 52.6 in November from a revised 51.1 in October and beating the three-year average of 51.9.

Production volumes increased from the previous month, while new orders and purchased stocks were also higher. The employment index, imports and exports all increased from October, the publisher said.

Hungary's central bank cut interest rates for the 16th time in a row last week, to a record low 3.2 percent, to support the recovering economy. The economy ministry said favourable investment data for the third quarter pointed to accelerating growth, which could see the economy expand by more than 2 percent next year.