Central Europe's economies continued to contract in January - lead by their manufacturing industries - under the combined weight of a credit crunch and a slump in demand for their exports. My feeling as all three economies - Poland, the Czech Republic and Hungary - are now in recession. Hungary's is clearly the worst case, and events are moving rapidly and negatively there, but the slowdown in the Czech Economy is also very pronounced, and Poland seems finally to be falling into line, following some internal financial chaos back in October. Based on back of the envelope type calculations derived from the PMIs I would say their economies were contracting at the following pace in January.
Q-o-Q Y-o-Y
Hungary -1% -4%
Poland -0.7% -3%
Czech Republic -1% -4%
These are only provisional assessments based on the PMIs and Consumer Confidence Indexes. They will be subject to calibration as we move forward and receive the real data, but all this should give us some general idea of what is happening, something which is badly needed in view of the suddenness of the change.
Hungary PMI
Hungary's manufacturing purchasing manager index (PMI) fell once again to a all-time low of 38.6 in January, down from 40.8 in December, according to the Hungarian Association of Logistics, Purchasing and Inventory Management (HALPIM) today. Any PMI index figure above 50 indicates expansion while a figure below 50 shows contraction in economic activity. The index hasd been above the critical 50 mark for more than three years before it dropped below (to 42.6) in October last year.
The January figure is the lowest recorded since September 1995 and is a further sharp drop from January. The last time the January index was below 50 was in 2005 (48.5) and then in 1997 (49.1), but these contraction were much softer.
“In view of the current situation we can confidently say that the five month negative record of 1998 will be broken. We are facing the gravest crisis of the manufacturing industry in almost 15 years," the HALPIM said.
GKI Confidence Index
Economic sentiment also plunged in January with the GKI index falling to a record. The overall index fell to minus 39.8, the lowest since measuring began in 1996, from minus 36.7 in December. The sub components for business and consumer confidence also fell to new lows.
The outlook for industrial production and orders led a decline in the business confidence index to minus 30.5 from minus 28.2 in December. The outlook for export orders improved “minimally,”. Fifty-eight percent of exports are sold in the euro region, which is in its worst recession since the single currency began trading a decade ago. Concern about future job losses dragged the consumer confidence index to a record of minus 66.1 from minus 60.8 in December.
Polish PMI
Morale in Poland's industrial sector rose for the first time in almost a year in January, but output growth remained mired firmly in negative territory, according to a purchasing managers' index survey published Monday. The survey of 300 industrial companies prepared by Markit for ABN AMRO showed Polish manufacturing PMI increased to 40.3 in January, from 38.3 in December. This is an improvement, but the contraction is still a strong one.
"Though slightly improved from the exceptionally weak December data, the latest survey findings underline the headwinds confronting Polish manufacturers in January. Output, new orders and employment all contracted sharply and, overall, the first batch of 2009 PMI data point to further aggressive rate cuts by the central bank in the first quarter following greater than expected reductions in the main policy rate in both November and December. Inflation concerns have eased despite the falling zloty, as the PMI showedfurther falls in price pressures in manufacturing." - Trevor Balchin, Economist at Markit EconomicsPolish Consumer Confidence
Poles have become much more pessimistic about the outlook for their economy in recent months and the Ipsos Consumer Confidence Index fell by 11 points to 84.17. The assessment of the current economic climate suffered the most serious deterioration.
(Please click over image for better viewing)
The consumer rating of the current economic climate plummeted by 15 points to hit 69.59. This is one of the lowest levels since Poland joined the European Union. Consumers are worried about the future of the Polish economy, and their worries are linked particularly to the situation on the job market. Currently some 52% of Poles expect unemployment figures to rise over the coming 12 months, while only 6% expect them to fall. This is a radical change, particularly when compared with January 2008, when only 13% expected a rise in unemployment and 39% expected a decline.
The deterioration in consumer sentiment was also to be seen in the ratings for willingness to buy, which in January fell by 8 points to 93.88 (the lowest level for 3 years). In particular expectations regarding the material situation of one's own household deteriorated. Ratings of the current situation in regard to buying durables also weakened somewhat. Nevertheless, consumer appetite is far from dead, and there are more people still considering this a good time for buying than those who disagree.
Czech Republic PMI
Czech industry continued its steep decline in January with the Czech Purchasing Managers' Index falling to dropping below the 50 mark (to 31.5) for the seventh consecutive month. As compared with December (32.7), the PMI was hit by series-record declines in new orders and employment, while deflationary pressure was also evident as both input and output prices continued to fall sharply, according to the report from Markit Economics and ABN Amro. The figure for output rose for the first time since September, to 29.5, indicating a slightly weaker rate of contraction than in December but still the second lowest in the survey's history.
Czech Consumer Confidence
In January 2009, the Czech economic sentiment indicator decreased by 3.2 points m-o-m (it was down by 8.6 points down in December). The business confidence indicator fell by 2.8 points and the consumer confidence indicator dropped 4.8 points. Compared to January 2008, the composite confidence indicator balance was down 30.8 points, the confidence of entrepreneurs is 34.7 points down and the confidence of consumers is down by 15 points. Indicators were thus at their lowest levels in almost ten years.
The survey taken among consumers in January indicates that, compared to December, consumers expect for the next twelve months worsening of the overall economic situation and a slight decrease in their own financial standing. In January, the share of respondents expecting a rise in unemployment increased again. The percentage of respondents planning to save money decreased. The consumer confidence indicator decreased by 4.8 points, m-o-m; it is by 15 points down, y-o-y.
2 comments:
Edward, you are obviously right. The Czech economy is in recession, no doubt about that. It has been growing much too fast for at least five years anyway, so maybe the correction has come before some of the bubbles known from Spain (household indebtedness, real estate prices) have grown to Spanish levels.
Which brings me to two questions, not much asked in these parts yet:
a) how long will the local recession last, assuming it started on October 1, 2008
b) to what extent can the Czech economy be helped by the koruna exchange rates returning to pre-boom levels (2003 rates stood at 32 CZK/EUR and 29 CZK/USD)
My own anecdotal evidence would suggest that it would help a lot. Just one example - I often travel to the parts of the country bordering on Germany and/or Austria. These districts have always profited from relatively low prices of hotel accomodation, dining and gasoline and thus attracted fairly massive inflows of German/Austrian tourists, who used to came for a Sunday lunch, a tankful of gasoline, a bit of shopping and a visit to the hair stylist. As the koruna went up in the past two years, these people almost vanished. This January I spent two weekends at the Czech border near Dresden and, voila, the koruna is down to 28.50 and the Germans are back in numbers.
So much for the anecdotal evidence - to quantify the macro effect of an euro for 33 korunas is certainly beyond my powers.
It is not so good time to write it, but Polish economy is still and will be for the next half of year (minimum) in deep recession. Looking into factory production factor and high unemployment rate (close to 15 % !!!) means, that also inflation will be difficult to take in the present value (3,6 %). Next months polish zloty will depreciate like last time in march (about 5 PLN for 1 EUR).
Post a Comment