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Why a weaker Germany could hit eastern Europe

An economic slowdown in Germany could bode ill for its easterly neigbors, whose open economies make them vulnerable to weakness in their biggest export market.

Official figures published Monday showed German industrial production fell by 1.8 percent in May from April—sharply worse than the flat reading anticipated. Moreover, revision to the figure for April showed production also fell during that month, by 0.3 percent.

The data came in the wake of surveys suggesting weakening business sentiment in Germany, and indicate a slowdown that could hit those emerging European economies which have it as their biggest trading partner. These include the former Soviet satellite states of Poland, Hungary, the Czech Republic and Slovakia, as well as Slovenia and Turkey.

Bratislava, Slovakia. The country's biggest export market is nearby Germany.
Katy Barnato, CNBC
Bratislava, Slovakia. The country's biggest export market is nearby Germany.

Speaking in the capital of Slovakia, Bratislava, one asset manager said the country was too dependent on Germany's fortunes.

"It is over-reliant," Tomas Martinec, the director of boutique asset management firm Metatron Capital, told CNBC. "I think the government understands, and the question is whether it has got the long-term strategy to change this."

Comments from Slovakia's official trade agency, meanwhile, suggested the government was aware of this issue.

"We certainly need to focus on fast-growing parts of the world," the head of the Slovak Investment and Trade Development Agency (SARIO), Robert Simoncic, told CNBC in Bratislava. "Our economy is very much connected to the German economy; there is no secret about that."


Meanwhile, the Polish government is encouraging firms to seize opportunities outside of Europe, with official websites seeking to educate businesses about markets in China and Africa. The country's government has also organized trade missions to India and Turkey, in an effort to help firms make new contacts.

There are signs that Germany's economic softening may already be hitting the eastern Europe region. On Monday, for instance, official figures showed that industrial production in both Hungary and the Czech Republic slowed in May. In Poland, meanwhile, manufacturing activity barely increased in June, according to HSBC.

SARIO's Simoncic named Russia, Turkey and South East Asia as among the growth markets Slovakia should target. He added, however, that a slowing Germany would not necessarily hit Slovakian business.

"Even in some potential slowdown, Slovak… business may still be growing, because we are very efficient," he said.

—By CNBC's Katy Barnato in Bratislava, Slovakia