From BNE Intelligence
CEE boom passes peak
August 15, 2018
The
boom Central and Eastern Europe (CEE) has been enjoying for the last
four years has reached its peak as countries in the region start to run
up against their structural limits.
Economists surprised by low inflationary pressure in Poland
bne IntelliNews August 20, 2018
While all the countries are still enjoying robust growth, the rate of expansion is starting to slow and in some cases has begun to fall. The main break on development is a growing labour shortage in the region, but more insidious is the lack of investment into new technologies and a reengining of businesses to go up the value added chain that will take longer to make itself felt.And on Poland:
Six economies in Central and Eastern Europe released second quarter GDP data this month: Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia. The data showed that regional growth slowed for a third straight quarter, weakening from 4.6% y/y in Q1 to 4.3% y/y in the second quarter – down from a peak of 5.6% y/y in the third quarter of 2017, reports Capital Economics.
“Detailed breakdowns of the data have yet to be released. But monthly activity data show that weaker growth in Q2 was widespread across sectors. After a sharp rebound in 2017 on the back of a recovery in EU structural fund inflows, growth in construction output slowed markedly in Q2. Meanwhile, continued softness in euro-zone manufacturing weighed on CEE industry. And retail spending weakened a touch — higher oil prices may have tempered consumer demand,” Capital Economics said in a note.
Its been a fun ride as bne IntelliNews pointed out in a cover story “CEE booms” last year but now the countries in the region will return to more levels of growth.
The Romanian economy already started to slow sharply at the end of last year, while the Czech economy slowed the most this quarter. Poland put in a small growth, however, economists are warning that the peak has passed and expect all the economies of the region to slow as the rest of the year plays out. Acute labour shortages that are causing wage inflation and the slow progress manufacturers are making in moving up the value chain is limiting the further growth of countries in the region.
“We think that the gradual slowdown in CEE GDP growth will continue over the course of 2018 and into 2019. Higher inflation and interest rates, as well as less supportive fiscal policy in parts of the region, will probably take the steam out of domestic demand. And weaker demand from the euro-zone and mounting capacity constraints will weigh on net trade. We expect CEE growth to average around 3% in 2019,” said Capital Economics.
GDP growth slowing but still strong
The Czech Republic was worst affected this quarter. Czechia’s economic growth decelerated to 2.3% year-on-year in the second quarter of 2018 from 4.2% growth in the first quarter as the economy runs up against its structural limits, the Czech Statistics Office (CSU) said on August 14. The main reason is a strong base effect from the previous year, but the slowdown was also due to the depleted capacities of the Czech economy, analysts say. Slovakia’s economy grew 4.1%, compared with 3.6% in the first quarter.
By contrast Hungarian GDP growth unexpectedly quickened to 4.6%, the fastest pace since 2014, driven by agriculture, services and manufacturing. But economic research institute GKI said at the end of July economic growth probably reached the peak in this business cycle of 4.4% in the 4Q17 and 1Q18.
Poland’s economy is the biggest in the region and is also holding up well, but growth is also expected to peter out later this year. GDP growth slipped from 5.2% in the first quarter to 5.1% in the second and is expected to slow further as the year wears on, due to weak investment growth as the construction sector reaches capacity limits, among other problems.
Romania’s economy has already passed its peak. After turning in an astonishing 8.8% growth in the third quarter of 2017. Romania’s state forecasting body the CNP cut its projection for this year’s GDP growth from to 5.5% in July from 6.1% in the previous outlook released in April. Romania’s GDP increased by 4% y/y in the first quarter of the year, the statistics office said earlier in July, confirming an earlier flash estimate, pushed up by private consumption.
Labour woes
The main problem is everyone now has a job and these workers can’t be made to work more or better. Poland in its desperation to find more labour has opened a bureau to fast-track work permits for Ukrainian jobseekers and bne IntelliNews’s correspondent in Tbilisi reports the capital of Georgia is plastered with posters advertising jobs in Poland....MORE
Economists surprised by low inflationary pressure in Poland
bne IntelliNews August 20, 2018
