Czech Republic

GDP fell by more than 4% at the end of 2009


Hungary

Foreign trade reached 4.2% of GDP surplus in 2009


Poland

Polish PM plans to change the constitution to prepare for the euro adoption


The Week ahead

Polish employment picture may deteriorate due to seasonal factors


Overview

Central Europe’s recovery is very fragile

Looking at the late 2009 performance of Central European economies, we cannot be very optimistic. The GDP in Hungary and the Czech Republic again fell by approximately 0.5% q/q in Q4 2009 (-0.6% q/q in the Czech Republic and -0.4% q/q in Hungary). Slovakia’s figure is much better at first glance (+2% q/q), but is not yet seasonally adjusted, unlike the data from the other economies.

At first sight, one is inclined to attribute the poor performance of the economy to the poor performance of the main trading partners, Germany in particular. The story on the waning effect of the bonus for scrapping cars is attractive to the media and would correspond to the poor improvement in German domestic demand in late 2009. However, this is not very consistent with either the fairly reasonable car sales in Germany in the fourth quarter, when the effect of the scrapping bonus probably still persisted, or the fairly reasonable development of Czech and Hungarian exports in late 2009. There is every indication, that households in the Czech Republic and Hungary have significantly curbed their expenditure.

This is not very encouraging news for the future. The unfavourable situation on the labour market and the restrictive effects of the fiscal policy will continue to curb private demand in the first half of this year. In addition, the termination of Germany’s scrapping bonus will ultimately impact on carmakers. Although the other industries (machinery, metallurgy) may perform well, due to the further improvement in German business sentiment, the drop in demand for cars will impact on both the Czech and Hungarian economies. Thus the recovery across Central Europe appears to be very fragile at the moment. We look out whether this picture will change after revisions, the seasonal adjustment of Slovakia’s figures, and the release of Poland’s data.