Czechs Power EU’s Fastest GDP Growth as Romania, Hungary Stumble

The Czech economy surged at the fastest pace in the European Union, leading expansion in the region that broke free of communism a quarter-century ago even as growth in Romania and Hungary stuttered.

Czech gross domestic product rose 4.4 percent from a year earlier in the second quarter, the fastest since 2007 and a full percentage point higher than the median estimate in a Bloomberg survey. While other regional economies including Romania and Hungary slowed, the region continued to outpace the euro area and Poland had its seventh quarter of growth above 3 percent.

The momentum shows the four nations, none of which use the euro, are proving resilient to a slowdown in the currency union, Russia’s first recession in six years and the debt crisis in Greece. Their combined economic output of about $1 trillion is benefiting from stronger domestic spending, fueled by record-low interest rates, as well as rising exports and EU funding.

“GDP data from central and south-eastern Europe serve as a reminder that it’s not all doom and gloom for the emerging world,” William Jackson, an analyst at Capital Economics Ltd. in London, said in an e-mailed report.

Euro-area quarterly economic growth unexpectedly slowed in the April-June period to 0.3 percent from 0.4 percent in the first quarter as expansion in its three largest economies -- Germany, France and Italy -- fell short of estimates.

Currency Gains

Eastern European currencies were the most resilient this week among developing nations as China’s yuan devaluation roiled markets. Hungary’s forint headed for a 0.2 percent gain this week, the best performance among 24 emerging markets tracked by Bloomberg, ahead of the Czech koruna, the Bulgarian lev, the Polish zloty and the Romanian leu.

The Czech economy was bolstered by consumer spending and investments, including EU funding, according to Viktor Zeisel, an economist at Komercni Banka AS in Prague.

“The Czech economy is regaining its lost position as the region’s high flyer,” Zeisel said in an e-mail. “Domestic growth is robust and balanced across all sectors of the economy.”

The growth rate of Poland, the EU’s biggest eastern economy, remained strong even as it slowed to an annual 3.3 percent from 3.6 percent in the first quarter. Expansion was “healthy,” with “strong contributions from private consumption, investment and net exports,” Bank Zachodni WBK economists led by Maciej Reluga said in a report.

Eastern Outliers

That contrasted with Romania, where “weak” industrial output and exports outweighed rising domestic spending to bring growth to 3.2 percent from 4.3 percent in the first quarter, according to Raiffeisen Bank Romania SA. The median estimate of seven economists was for a 4.8 percent gain. Romania was the EU’s fastest-growing economy in the first quarter.

In Hungary, a drop in agricultural output pushed economic expansion to 2.7 percent in the second quarter, the first time it’s dipped below 3 percent in the past seven quarters. The government maintains that full-year GDP will expand about 3 percent on the back of industrial production, exports and rising domestic spending.

“Central Europe has maintained strong growth,” said Daniel Hewitt, an economist at Barclays Plc in London. “The ascendance and consolidation of the Czech Republic’s growth to the top of the region is an interesting development as until 2014 it lagged behind others.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE