Central European purchasing manager indices (PMI) continued to power onwards in November, with Poland joining Hungary and the Czech Republic in registering an improvement in sentiment, data released by Markit on December 1 showed. Adding to recent bright data out of the region, it suggests a surprisingly strong end to the year.
The brightening picture in the Visegrad states comes despite the continued stand-off with Russia and further deterioration in the Eurozone economy. Indeed, Markit revealed the same day that the PMI for Germany – whose supply chain drives a huge chunk of export demand for Central Europe – dropped to a 17-month low of 49.5 in November. Any mark below the 50-point threshold denotes contraction in a country’s manufacturing sector.
Yet Hungary – which saw its PMI rise 0.1 points to 55.1 – and the Czech Republic have spent the second half of the year swatting away such worries, with their PMI readings robust; albeit the Hungarian data is considered erratic and a poor guide to actual industrial production.
The Czech economy has remained upbeat throughout the year, boosted by the central bank’s zero rates and a weakening of the currency. The November PMI reading reflects that once again, rising to 55.6 from 54.4. That the improvement was powered by new orders bodes well for fourth quarter output in the vital sector.
Agata Urbanska-Giner at HSBC, a co-issuer of the Czech and Polish data, notes the ongoing confluence of positive signals. The PMI data “continues to show expansion in manufacturing, despite more volatile business confidence data from Germany,” she writes. “It is also in line with improving broad business and consumer sentiment according to the survey by the Czech statistical office.”
However, the recently stuttering Polish data did most to push sentiment in the region. Poland’s PMI readings have sagged on the back of subdued confidence in recent months as the economy has fretted over the Ukraine crisis and its effects. However, the reading jumped from the 51.2 seen in October to a seven-month high of 53.2 in November. Again, new orders did much of the legwork.
“It really looks as though lower oil prices are more than making up for the negative spillover out of eastern Ukraine,” write analysts at Commerzbank, “something that is likely to hold for some months.”
Knockout blow
Coming on the back of better-than-expected third quarter GDP growth of 3.2% released last week, the strong return to expansion of the manufacturing sector is likely the knockout blow to any remaining hope of more easing this year in Poland. The monetary policy council meets this week, with the hawks in the ascendancy, despite resistance from governor Marek Belka.
“Today’s PMIs, coming alongside the rise in the [European Commission’s] economic sentiment indicators published last week, reinforce the picture that growth in Central Europe has strengthened in the fourth quarter,” writes William Jackson at Capital Economics. “At the margin, the pick-up in the Polish PMI will reinforce the position of the hawks on the MPC. Accordingly, while [the December 3] rate decision looks like being a close call – with an interest rate cut a distinct possibility – we are sticking to our forecast for the policy rate to be left on hold at 2.0%.”
The Polish central bank meeting comes just a day before the European Central Bank’s December 4 meeting. The weak Eurozone PMI data means it’s likely to move further towards quantitative easing. That would then set the scene for further easing in Poland – as well as Hungary most probably – in early 2015.
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