Factory output in central and eastern Europe grew steadily in December despite worries over China's slowing growth, data showed on Monday, with the region benefiting from lower oil prices and rising demand from the euro zone, its main trade partner. The manufacturing PMI in Poland, the region's biggest economy, stood at 52.1 last month, unchanged from November, according to data compiled by Markit. Readings above 50 point to expansions in activity.
The data signalled that investor unease following the October election victory of the economically populist Law and Justice (PiS) party had little impact on industry despite sharp falls on the local stock exchange. Opposition parties and rights activists accuse PiS of undermining democratic checks and balances.
Czech manufacturing business sentiment improved more than expected in December, with the manufacturing PMI index up to 55.6 due to stronger new orders, the HSBC Purchasing Managers' Index (PMI) showed. Central and eastern Europe relies on imported oil, the dollar-denominated price of which has fallen two-thirds since mid-2014 on ballooning oversupply. That has left consumers and companies with more money to spend and invest.
"We are optimistic. We expect the economy will see further growth," Pavel Badal, director of Czech electronics retailer Datart, said in a business outlook survey in Monday's Hospodarske Noviny newspaper. "Already (in 2015) we saw that people were not afraid to spend, buying more expensive and higher-quality goods." Capital Economics said in a note that its weighted PMI for the region had edged down to 52.5, pointing to industrial production growth slowing to a little below 5 percent year-on-year over the coming months.
The rise in the Czech Republic reflected an increase in the euro zone manufacturing PMI, which hit a 20-month high of 53.2 in December, holding above the 50 mark that separates growth from contraction for well over two years. Demand from the euro zone accounts for about 60 percent of Czech, Hungarian and Polish exports. On Monday, a fall in China's factory activity in December triggered sharp falls on European and Asian bourses.
The potential impact of China's slowdown on Germany's export-oriented economy could pose a risk for central and eastern Europe. But this indirect impact is likely to be limited and to be felt only with some delay, economists say. Hungarian PMI, measured by a different methodology which analysts say is more volatile, was an outlier, dropping to 49.1 in December from a revised 55.8 in November. In September, the Hungarian PMI jumped while others fell.
The Association of Logistics, Purchasing and Inventory Management, which publishes the Hungarian index, said planned production shutdowns and fewer working days in December had played a decisive role in pushing down the index in the last month of 2015. "This fall was largely due to the fact that car factories shut down production ... so I would not draw conclusions from this figure alone. We have to see at least another month of data," said Andras Balatoni, an analyst at ING.
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