Romania's economy expanded much more quickly than expected in the third quarter and Polish expansion buzzed along, marking solid growth in the European Union's eastern wing even as its richer neighbours to the west struggle. Preliminary data released on Friday showed central and eastern Europe was holding up against the euro zone slowdown and tit-for-tat sanctions between the EU and Russia amid the simmering Ukraine crisis along the region's eastern borders.
Romania posted annual growth of 3.2 percent, nearly four times more than analysts had expected, and a region-leading 1.9 percent quarterly rise. Analysts said part of the surge was driven by historical revisions of output figures to bring them into line with EU norms, but the underlying picture was also strong. "The dynamics for the third quarter were much stronger than expected," said Mihai Patrulescu, senior economist with UniCredit Tiriac Bank in Bucharest. "We believe industrial production, construction and services were the main drivers."
The revisions also showed the Balkan country had not fallen into recession earlier this year. Europe's biggest economy Germany narrowly avoided recession in the third quarter and France exceeded low expectations, putting the euro zone on course for weak growth and adding to pressure on the export-reliant east. Policymakers have warned of risks from the weak euro zone. Its influence could be seen in a slight deceleration in growth, although stronger domestic consumption is helping.
In the Polish economy, which accounts for about 40 percent of annual output in the region, growth slowed to 3.3 percent year-on-year from 3.5 percent in the previous quarter but was still half a percentage point higher than analysts had forecast. Zoltan Arokszallasi, CEE fixed income analyst with Erste Group Bank, said that Romania and Poland were the standouts in the quarter and that the data in those countries reduced chances their central banks will look to cut interest rates further.
Romania cut its base rate to a record low 2.75 percent last week while Poland surprised by leaving its main rate at an all-time low of 2.00 percent and signalled that only a deterioration of the outlook for growth could prompt more monetary easing. Interest rates across the region have fallen in recent years to get economies back on track. In Hungary - where earlier this year the central bank finished a two-year cycle of cuts to bring its base rate to a record-low 2.10 percent - the economy slowed but was above estimates with annual growth of 3.2 percent.
Slovakia also beat expectations with a 2.4 percent annual rise, slowing from the previous quarter. Bulgaria grew 1.6 percent. The Czech Republic, which like its neighbours sends a high majority of exports to the EU, showed slower than expected growth, decelerating to 2.3 percent year-on-year from 2.5 percent. On a quarterly basis, the economy grew 0.3 percent.
Its central bank has kept interest rates at near zero for two years and launched interventions to weaken the crown currency a year ago. It has said domestic demand is becoming a key driver for the economy - a needed boost while problems remain in the euro zone. "Problems in the euro zone will continue to weigh on CEE, but the business surveys point to a pick-up in growth in the final months of the year," said Neil Shearing, chief emerging markets economist at Capital Economics. "This is consistent with a view that the region is likely to see solid, if not spectacular, rates of growth in 2015-16."
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