Exports Seen Driving East Europe's Economic Recovery in the First Quarter

The Czech Republic and Hungary probably recovered from recessions in the first quarter as demand for their exports in the euro area improved.

Two of east Europe’s largest economies will report quarterly economic growth as well as an annual improvement when they publish preliminary gross domestic product data tomorrow, Bloomberg surveys showed. The region is depending on a revival in demand for its products, such as cars and electronics goods, in western markets to restart economic growth.

The former communist countries in Europe are trying to emerge from the deepest recession since switching to free-market policies two decades ago. The European economy is recovering as trade picks up after the credit crisis choked off investments and companies cut jobs in response to faltering orders. The International Monetary Fund raised its 2010 growth forecast for east Europe on April 21 to 2.8 percent from 2 percent.

“The recovery is driven mainly by exports, while household demand remains negative,” said Jaromir Sindel, a Citigroup economist in Prague.

The Czechs had an annual GDP increase of 1.2 percent in the January-March period, the first increase after four declines, the median forecast in a survey of 9 analysts showed. The median of 8 analyst forecasts was for quarterly growth of 0.3 percent.

Hungary’s economic contraction probably slowed to an annual 2.1 percent from 4 percent in the last quarter of 2009. On a quarterly basis, the median forecast of 6 analysts was for growth of 0.2 percent.

Open Economies

“Both countries should show slight quarterly growth, with the stage of the recovery reflecting the openness of their economies,” Sindel said.

Slovakia, which joined the euro area in 2009, Romania and Bulgaria will also report first-quarter preliminary GDP data tomorrow. Slovakia is forecast to show annual GDP growth of 4.5 percent after a 2.6 percent drop in the final quarter last year, while Romania’s economic decline probably slowed to 3.3 percent annually from 6.5 percent. Bulgaria, the EU’s poorest state in per capita terms, shrank 3 percent after contracting 5.9 percent in the final three months of 2009, a survey showed.

The Czech Republic hosts car factories from Volkswagen’s Skoda Auto AS and Hyundai Motor Co. and had its 15th consecutive trade surplus in March, while industrial production rose at the fastest pace in 29 months. Auto-industry output grew 29 percent in the first quarter and sales abroad increased 23 percent.

Surprise Cut

The Ceska Narodni Banka on May 6 unexpectedly cut the benchmark two-week interest rate by a quarter-point to a record- low 0.75 percent and lowered its forecast for economic growth next year as the Greek debt crisis clouds the outlook. The bank kept its 1.4 percent economic growth forecast for this year and cut the 2011 outlook to 1.8 percent from 2.1 percent.

The central bank may be “overly pessimistic” about trends in the economy, said Martin Lobotka, an analyst at Ceska Sporitelna, the Czech unit of Erste Group Bank AG, pointing to the March trade surplus, industrial production and a 16.5 percent rise in export orders.

Hungary, the first European Union country in 32 years to obtain a bailout when it borrowed 20 billion euros ($25.4 billion) from a group led by International Monetary Fund in 2008 to avert a default, is struggling to emerge from its worst recession since 1991. The economy shrank 6.3 percent last year and is forecast to contract 0.2 percent in 2010 before returning to growth in 2011, according to the outgoing government.

The 16-nation euro region buys 60 percent of Hungary’s exports, including Audi AG cars and Nokia Oyj mobile phones. It had a record trade surplus of 653.1 million euros in March, with exports rising 17.2 percent in euro terms.

The new government wants to convince creditors to allow an increase in the 3.8 percent of GDP budget-deficit target for this year as it seeks to resume economic growth.

“Hungary probably exited from the recession,” Janos Samu, a Budapest-based analyst at Concorde Securities, said in an e- mail. “Three things are at work: industrial production, exports and inventory.”

To contact the reporters on this story: Peter Laca in Prague at placa@bloomberg.net; Zoltan Simon at zsimon@bloomberg.net

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