Fears grow over economic recovery

VILNIUS - Eastern Europe’s economic recovery may be weakening after manufacturing confidence, the driving force behind the rebound, fell last month in every country in the region except Russia and Hungary, says Capital Economics, reports Bloomberg. The figures are “still consistent with double-digit annual increases in industrial production,” though the pace of expansion will be difficult to sustain in the coming months as a global recovery is slowing and domestic demand remains sluggish, Neil Shearing, a senior emerging market economist at London-based Capital wrote in an e-mail.

Growth in the region will “disappoint next year and the pace of monetary tightening” will “be much slower than the market currently expects,” Shearing wrote.
The former communist countries in Europe and Central Asia are recovering from their deepest recessions since switching to free-market policies two decades ago. The European Bank for Reconstruction and Development last month lowered its forecast for growth in Eastern Europe and Central Asia, citing higher risks from budget cuts and volatile markets in the euro region.

The EBRD forecasts economic growth in the 30 countries in which it invests averaging 3.5 percent this year and 3.9 percent in 2011. “The bad news is that pressures facing manufacturers in the region are only going to increase from here,” Shearing wrote. As the global recovery flags, “there is little chance of domestic demand taking up the slack. Credit remains tight, a fiscal squeeze is looming in pretty much every country and the labor market has been slow to recover.”

Poland’s Purchasing Managers Index fell unexpectedly in July to 52.1 from 53.3 in June, the highest in almost three years, HSBC Holdings Plc said. Czech manufacturing confidence eased to a four-month low of 56.8, from 57.6 in June, HSBC said. Turkey’s July PMI declined to 52.8, from 53.2, falling for a second consecutive month, HSBC and Markit added.
“The dip in new orders in Poland and Turkey appears to have been driven by domestic factors; in the case of the Czech Republic it seems to have been driven by a slowdown in new export orders,” Shearing wrote.

Hungary’s manufacturing index rose to 53.5 in July from 49.6 the previous month, the Hungarian Logistics, Purchasing and Inventory Society said on Aug. 2. Russian manufacturing confidence also expanded, VTB Capital said, rising to 52.7 from 52.6 in June. Emerging-market stocks rose, lifting the benchmark index to a three-month high on speculation China will reverse policies aimed at cooling the nation’s economy. A decline in China’s Purchasing Managers’ Index to 51.2 in July from 52.1 led analysts to speculate the government may roll back policies aimed at slowing the economy.