Emerging Europe Economics

Central & Eastern Europe GDP (Q4 2019)

Emerging Europe Data Response
Written by Liam Peach

The weak batch of Q4 GDP data for Central & Eastern Europe show that the downturn in Germany took a bigger toll on growth across the region. Prolonged weakness in the euro-zone and softer domestic demand mean that growth will slow further in 2020, but loose policy should prevent a sharp slowdown.

Central Europe catches Germany’s cold

  • The weak batch of Q4 GDP data for Central & Eastern Europe show that the downturn in Germany took a bigger toll on growth across the region. Prolonged weakness in the euro-zone and softer domestic demand mean that growth will slow further in 2020, but loose policy should prevent a sharp slowdown.
  • Six countries in Central and Eastern Europe (CEE) released flash estimates of Q4 GDP data today: Bulgaria, Hungary, Poland, Romania, Slovakia and the Czech Republic. At a regional level, GDP expanded by 0.6% q/q, which pulled growth down from 3.5% y/y in Q3 to a three-year low of 3.4% y/y in Q4. (See Chart 1) At a country level, however, there are two different stories playing out. Hungary and Romania expanded at growth rates of 1.0-1.5% q/q, much stronger than in Poland, the Czech Republic, Slovakia of 0.2-0.6% q/q.
  • The drag from the downturn in German industry intensified at the end of last year, hitting export-intensive manufacturing sectors across the region. This was most notable in the Czech Republic and Slovakia, where weakness spread to the labour market and weighed on domestically-focused sectors. In Poland, the slowdown in growth was broad-based.
  • The solid rates of growth in Hungary and Romania reflected strong domestic demand, which provided some offsetting support to weakness in industry. Construction activity remained robust and retail sales continued to expand at a solid pace, reflecting rapid wage growth and loose fiscal and monetary policy.
  • Turning to 2020, we think that growth will slow further across the region. While there have been tentative signs that the euro-zone economy has stabilised, we think that any recovery in Germany’s economy will be sluggish and the slowdown in industry across the region at the end of last year will provide a weak carryover into 2020. What’s more, some of the props to growth, including the boost from new production capacity in the motor vehicles sector in Hungary and the construction boom in Romania, will fade.

Chart 1: Central and Eastern Europe GDP Growth*

Sources: National Statistics Offices, Capital Economics

Table : Central & Eastern Europe GDP (All data are seasonally-adjusted)

Bulgaria

Czech Rep.

Hungary

Poland

Romania

Slovakia

% q/q (% y/y)

% q/q (% y/y)

% q/q (% y/y)

% q/q (% y/y)

% q/q (% y/y)

% q/q (% y/y)

Q1 ‘19

+1.1 (+3.9)

+0.6 (+2.7)

+1.3 (+5.2)

+1.4 (+4.7)

+1.1 (+5.0)

+0.6 (+3.3)

Q2 ‘19

+0.9 (+3.8)

+0.6 (+2.8)

+1.1 (+5.1)

+0.7 (+4.1)

+0.9 (+4.4)

+0.3 (+2.3)

Q3 ‘19

+0.8 (+3.7)

+0.4 (+2.5)

+1.1 (+4.7)

+1.2 (+4.0)

+0.6 (+3.2)

+0.4 (+1.7)

Q4 ‘19

+0.7 (+3.5)

+0.2 (+1.7)

+1.0 (+4.6)

+0.2 (+3.5)

+1.5 (+4.2)

+0.6 (+1.9)

Sources: National Statistics Office, Capital Economics


Liam Peach, Emerging Europe Economist, +44 20 7808 4990, liam.peach@capitaleconomics.com

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