CEE ECONOMY-Central Europe's PMIs show improvement but orders still lacking

Central European manufacturing activity showed some signs of improvement in February as a downturn in Poland and the Czech Republic eased while Hungary's production increased, sector surveys showed on Friday. With industry remaining weak in central Europe, the region's economies are looking for renewed consumer demand to propel growth this year after high inflation hit hard last year.

Central European manufacturing activity showed some signs of improvement in February as a downturn in Poland and the Czech Republic eased while Hungary's production increased, sector surveys showed on Friday.

With industry remaining weak in central Europe, the region's economies are looking for renewed consumer demand to propel growth this year after high inflation hit hard last year. Bright spots for the economy have started to appear as price growth slows.

Updated gross domestic product (GDP) data from the Czech Republic on Friday showed the economy returned to growth in the fourth quarter - with a 0.2% quarter-on-quarter rise - after a third-quarter decline. Czech GDP fell by 0.4% last year, according to the statistics office release. Looking forward, S&P Global's Czech manufacturing Purchasing Managers' Index (PMI) rose to 44.3 in February from 43.0 in January, hitting its highest since last March. However, it has been stuck below the 50 mark dividing growth from contraction since mid-2022.

"Household consumption mainly helped the recovery of the economy (in the fourth quarter)," Banka Creditas economist Petr Dufek said, adding that negative signs in industry still remain. "There is a lack of orders and our main trading partner - Germany - is teetering on recession."

Central European manufacturers have struggled for orders with slack demand from euro zone partners, notably European economic powerhouse Germany. S&P Global's Polish PMI rose to 47.9 in February, from 47.1 in January, as declines in both output and orders slowed.

It follows statistics office data on Thursday showing the region's biggest economy grew in year-on-year terms for a second straight quarter at the end of 2023. "The worst of the downturn appears to have passed," Trevor Balchin, economics director at S&P Global Market Intelligence, said in a statement. "The 12-month outlook for production improved further, reaching the highest since June 2021."

In Hungary, PMI rose to 52.2 in February from a revised 50.1 in January, with signs of moderate expansion appearing, the Association of Logistics, Purchasing and Inventory Management (MLBKT) said. The index of production volumes rose and was above 50 points. The volume of new orders also increased, but was only the 15th highest reading since 1995.

"I think we should treat this PMI data carefully, it shows a relatively optimistic picture but we will see next week what the fresh industry output data show," Peter Virovacz, an ING economist in Budapest, said.