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East European Growth to Slow More on Euro Region, Capital Says

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Sept. 7 (Bloomberg) -- Eastern Europe’s economic growth is set to slow further because of a deteriorating outlook in the euro area, the region’s largest export market, Capital Economics Ltd. said.

The east’s second-quarter slowdown was triggered by austerity and falling economic confidence as households hold back on consumption and companies run down inventories faster on concern demand will fall, William Jackson, a London-based emerging-markets economist at Capital, wrote today in an e-mailed note.

“Weak domestic demand was the main drag on growth coming on the back of fiscal austerity and falling confidence,” Jackson wrote. “With external headwinds mounting, we think growth is set to slow further over the coming quarters.”

Eastern Europe depends on the euro region for exports, foreign direct investment and bank funding. Western European lenders control about two-thirds of the region’s banking industry. The economy of the 17-nation euro area shrank 0.2 percent in the second quarter from the January-March period, when it stagnated.

The Czech and Hungarian economies contracted 1 percent and 1.3 percent from a year earlier in the second quarter, while Poland grew 2.4 percent, its slowest pace in almost three years.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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