Aug. 17 (Bloomberg) -- East Europe’s economies, most of which endured record output declines last quarter, look poised to start recovering from recession in the second half as key export markets in western Europe return to growth.

Industrial production contracted at a slower pace in Hungary, the Czech Republic, Romania, Latvia, Lithuania and Slovakia in June, helping the Slovak and Czech economies to grow last quarter from the first three months of the year.

“These are definitely green shoots,” Raffaella Tenconi, a Prague-based economist at Wood & Co., said in a phone interview. “For 2010, there’s definitely mounting evidence that GDP projections will be revised upwards.”

Eastern Europe’s export-reliant economies need a western European recovery to revive their manufacturing sectors and spur job growth. After Germany and France exited their recessions last quarter, prospects have brightened for a resurgence of demand that might help the region’s emerging economies expand.

“We see a good chance that the economic decline has already bottomed out in the region,” said Laszlo Bencsik, Chief Financial Officer at OTP Bank Nyrt., the Hungarian lender with units in Bulgaria, Croatia, Montenegro, Romania, Russia, Serbia, Slovakia and Ukraine.

The forint traded at 274.56 per euro at 9:24 a.m. in Budapest, from 271.84 late on Aug. 14. The zloty fell to 4.1927 per euro from 4.1453 and the koruna slipped to 25.772 against Europe’s common currency from 25.686.

Worst Over?

The second quarter may have been the worst for most of the region’s economies.

The Czech Republic on Aug. 14 said its output contracted at a record annual pace of 4.9 percent last quarter, after shrinking 3.9 percent in the previous three months. Romania on Aug. 13 reported an annual economic contraction of 8.8 percent in the second quarter after slumping 6.2 percent in the first three months. Hungary’s economy fell an annual 7.6 percent last quarter, after shrinking 6.7 percent in the first quarter.

In Slovakia, where output grew on the quarter, the economy contracted an annual 5.3 percent in the second quarter, compared with a 5.6 percent slump in the previous three months. Poland is the only eastern European country to have avoided a recession.

At the same time, the decline in Czech industrial output eased to 12.2 percent in June from 22.1 percent at the start of the quarter. Hungary’s industrial output fell an annual 18.8 percent in June, compared with 22.1 percent in May.

Growth

The Czech economy may grow 1.4 percent next year, according to a Bloomberg survey of 11 economists, with separate surveys forecasting economic expansion in Poland, Russia and Slovakia. Three of eight forecasters expect Hungary’s GDP to increase in 2010. The median forecast is for a 0.5 percent contraction.

Even so, the recovery may be slow, after recessions left most governments hampered by swollen budgets, forcing them to push through austerity measures that may hurt demand, said David Oxley, a London-based economist at Capital Economics.

Hungary, Latvia and Romania have the added burden of meeting budget deficit targets set by the International Monetary Fund, which provided emergency loans to the countries to help them finance their deficits.

“There are signs of easing though it’s still quite a grim economic picture overall for eastern Europe,” Oxley said in a phone interview. “It’s too early to talk about a return to sustained growth.”

Oxley forecasts quicker recovery for Poland and the Czech Republic and a protracted road back to growth for Hungary, Romania and the Baltic states of Estonia, Latvia and Lithuania, where he said budget constraints are tighter.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

Last Updated: August 17, 2009 03:29 EDT