Consumer Revival Fuels Faster Growth in EU’s Eastern Members

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Growth in the European Union’s biggest eastern economies accelerated or kept pace in the first three months as a dip in inflation stoked consumer spending.

Romania’s gross domestic product surged 4.3 percent from a year earlier, up from 2.7 percent in the fourth quarter and more than a Bloomberg survey that predicted 2.6 percent. Slovak and Bulgarian expansion also quickened, while Hungary’s stayed the same. Polish and Czech GDP data, set to show faster growth, are due on Friday.

Retail sales in Hungary and the Czech Republic are swelling the most since 2008 as shoppers benefit from low oil prices and a quickening recovery in the euro area, the region’s biggest trading partner. Sturdier consumer spending is outweighing damage from the conflict in Ukraine and concern that Greece will abandon the common currency.

The “robust” growth figures driven by activity in the euro region “are the envy of most parts of the world,” said Phoenix Kalen, a London-based director for emerging-market strategy at Societe Generale SA. “Private consumption and business activity are regaining ground, helped in part by the boost to discretionary income from lower energy prices and by easy monetary policy.”

Romania Surprise

Romania’s growth surprise was driven by the construction industry, according to Anca Maria Aron, a Bucharest-based economist at UniCredit Tiriac Bank SA. First-quarter expansion may be this year’s fastest, she said in an e-mailed note, predicting GDP will rise about 3.2 percent in 2015.

“Risks are skewed to the upside,” she said. “Private consumption will continue to be supported by falling prices, in light of the planned VAT cut and decreasing interest rates.”

Inflation in eastern Europe has slowed toward zero, dipping below that in countries including Poland. That’s prompted central banks from Bucharest to Belgrade to trim borrowing costs to record lows, further helping shoppers.

The interest rate cuts haven’t hurt currencies as the European Central Bank continues monetary stimulus.

The Polish zloty has gained 5.2 percent against the euro in 2015, the second-best performer after Russia’s ruble among 14 emerging European currencies tracked by Bloomberg.

Russian Impact

Poland’s economy expanded 3.3 percent from a year earlier in the first quarter, up from 3.1 percent in the previous three months, while Czech GDP grew 2 percent compared with 1.4 percent, according to two Bloomberg surveys.

Slovak GDP growth quickened to 3.1 percent, Bulgaria’s expansion accelerated to a four-year high of 2 percent and Hungary’s maintained its 3.4 percent pace, data released Wednesday showed.

Nations elsewhere in the region are in worse shape. The economies of Estonia and Lithuania, which export to recession-stricken neighbor Russia, both shrank from the fourth quarter. Latvia expanded at the slowest pace in four years.

Even so, full-year growth should be positive, averaging 2.6 percent in the Baltic region and the EU’s emerging east, the International Monetary Fund predicts. The expansion will be “supported largely by private consumption boosted by cheaper oil and stronger euro area recovery,” it said this week.

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