Eastern EU Economies Outpace Euro Area on Consumer Revival

  • Growth accelerates in Poland, Romania, Slovakia, Bulgaria
  • Czech Republic keeps fastest growth in region as Hungary slows

A revival in household demand coupled with last-minute spending of European Union development funds helped the bloc’s eastern economies surpass their western neighbors last quarter.

Annual growth quickened to between 2.9 percent and 3.6 percent in Poland, Romania, Slovakia and Bulgaria, data released Friday showed. The Czech Republic grew fastest, even as expansion weakened to 4.3 percent. While Hungary’s economy slowed, it still outpaced the 1.6 percent notched by the 19-member euro area.

Eastern EU nations are thriving as consumers recovering from years of austerity revel in cheaper fuel costs and slower inflation following the oil-price plunge, and countries such as Romania trim sales taxes. Economies are also benefiting from higher public investment as governments rush to tap EU grants before deadline. The mood contrasts with most of the euro region, where the European Central Bank is examining the need for fresh stimulus.

"Economies continued to grow robustly, despite fears of a widespread emerging-market slowdown," William Jackson, an analyst at Capital Economics Ltd. in London, said in an e-mailed note. "This year is shaping up to be the strongest for the region since 2008."

Zloty Weakens

Poland’s zloty fell after the release, trading down 0.2 percent at 4.24 against the euro. Romania’s leu weakened 0.1 percent, while Hungary’s forint strengthened 0.2 percent.

EU-financed investment projects accounted for a third of Slovakia’s 3.6 percent growth last quarter, the Finance Ministry said in a statement. The nation, which adopted the euro in 2009, grew at the fastest pace in five years as employment rose 2.2 percent from a year ago.

Expansion in Poland, the EU’s largest eastern economy, reached 3.4 percent and topped analyst predictions. It will be "significantly" above 3 percent this year as a whole, Janusz Witkowski, head of the statistics office, said after the release.

Inflation near or below zero is allowing central banks across the region to maintain relaxed monetary policies, with benchmark rates at record lows. Further supporting growth, unemployment has ebbed from crisis peaks.

Favorable Environment

"This environment fuels improvement in the labor market and households are more willing to increase consumption,” Radomir Jac, chief economist at Generali Investments in Prague, said in a note.

The news isn’t all good.

Hungary, the region’s fastest-growing economy as recently as last year, saw growth decelerate to 2.3 percent, the worst since 2013 and less than the 2.5 percent seen in a Bloomberg survey. As EU funding dries up, expansion will slow further next year, to 2.2 percent, the European Commission said in its latest forecast last week. The same phenomenon will erase almost half of Czech growth in 2016, it said.

Next year’s outlook for the region is dependent on commodity prices and the fortunes of emerging-market economies, according to Generali’s Jac. Germany, the No. 1 trading partner of Poland and the Czech Republic, is at risk from an economic slowdown in China and other developing nations where it sells its manufactured goods.

"A prolonged and more significant slowdown of these economies would negatively impact European exports and filter through to the labor market," Jac said.

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