Central Europe’s manufacturing slows, Czech PMI at three-year low

By Jason Hovet and Marcin Goettig

WARSAW (Reuters) – Czech manufacturing sector growth unexpectedly fell to a 3-year low in June and factory activity also slowed in Poland and Hungary, data showed on Friday, reflecting reduced inflows of European Union funds.

The headline Czech manufacturing PMI unexpectedly dropped to 51.8 in June from 53.3 in May, data compiled by Markit showed. The reading came in below all analysts’ forecasts collected by Reuters and a median forecast of 54.2.

“The Czech PMI continued its descent in June,” said Trevor Balchin, senior economist at Markit. “The output index is consistent with a stagnation in the official year-on-year measure of industrial production.”

Poland, Czech Republic and Hungary, all former communist economies and EU members since 2004, benefit from billions of euros of so-called EU structural funds, which the countries spend on, among other things, upgrading their infrastructure.

A previous 7-year EU funding perspective ended in December and the new one has seen a slow start so far, leading to a slowdown in economic growth across the region.

The decline in the Czech PMI has been the longest since 2009, Markit said, adding that indicators for output, new orders, exports, jobs and purchasing all weakened last month.

The Polish economy shrunk by 0.1 percent quarter-on-quarter in the first three months of the year, compared to 1.3 percent growth at the end of 2015. The Polish government expects fresh EU funds to start powering the economy once again somewhere around the turn of the third and fourth quarter.

“BY NO MEANS DISASTER”

Poland’s manufacturing activity also slowed in June, although new orders and output both picked up. The Markit Poland Manufacturing PMI index (PMI) eased to 51.8 last month from 52.1 in May, below a Reuters forecast of 52.8, but still above the 50 level that indicates expansion.

The data was gathered by Markit before Britain’s vote to quit the European Union and some economists expect next month’s survey to show a negative impact.

Hungary’s manufacturing PMI, which is calculated under a different methodology, fell to 50.9 in June from a revised 52.2 in May.

The declines took place despite a rise in the manufacturing PMI in the euro zone, central and eastern Europe’s main trade partner.

“These (PMI) survey readings in Central Europe are by no means a disaster,” Capital Economics said in a note. “Strong growth in consumer-facing sectors should help to mitigate the impact of weakness in manufacturing on GDP.”

Poland’s new conservative government of the Law and Justice (PiS) part launched earlier this year a new child benefit worth 1 percent of GDP in 2016 alone – the biggest welfare policy since Poland’s 1989 start of transition from communism.

In the Czech Republic, the car manufacturing sector – a mainstay of the economy led by Volkswagen’s unit Skoda – has remained robust and consumer demand healthy.

(Writing by Marcin Goettig; Editing by Toby Chopra)