Tumult of the very first trading days of the New Year boosted the blood pressure of traders and economists alike back to the full-speed working levels rather quickly. Swift declines in the stock markets of China that could only be halted by administrative circuit-breakers contributed to increased volatility also on other bourses around the world as well as in the energy commodity markets.
Such a wake-up call after the holiday season at the end of last year was more than abrupt and well in line with the Slovak proverb, which holds that the very first experiences, after the past year is gone, could foreshadow the course of the entire upcoming year.
Are we in for a swirling ride this year?
Judging by the first macro figures from the real economy of the Central Europe (CEE), the nearest future seems almost as bright as it gets, though.
In the Czech Republic, the real growth of GDP in the third quarter accelerated up to 4.7 percent year-on-year, the strongest result since 2007. The anticipated full year result exceeding 4.5 percent is basically more than double the pace from the prior year. Moreover, the second consecutive year of real industrial growth to the tune of 5 percent has been recorded in 2015.
The second strongest annual dynamics of real GDP growth since 2007 was recorded in Hungary in 2015. Albeit, due to higher base effect, the 3.7 percent year-on-year increase from 2014 slightly moderated to around 3 percent in the last year. The lowest key interest rate of the Magyar Nemzeti Bank (1.35 percent) on the record supported ongoing solid recovery of the industrial activity also in Hungary, which recorded the second consecutive growth of around seven percent.
Slovak real GDP growth in 2015 has accelerated by more than the full percentage point (3.6 percent) from the preceding year. In the last quarter of 2015, the real GDP growth is forecasted to exceed the 4 percent mark – the strongest result since 2010.
The industrial activity in Slovakia has also accelerated from less than 4 percent year-on-year up to over 5 percent in 2015. The seemingly weakest industrial growth within the region in 2014 was the function of the statistical base effect, as Slovakia avoided mild recession of 2012-2013, unlike its neighbours across the rivers of Morava and Danube.
As many as three months of the past year – including November (+11.9 percent) – have witnessed double digit annual growth in the real industrial production. Thanks to the gradual acceleration in the second half of the year, the new industrial orders last year increased by 6.5 percent year-on-year, twice the dynamics of 2014.
Embarkation of the new Jaguar Land Rover production facility in Slovakia is thus by far not the only argument for expectations of ongoing real GDP growth exceeding 3 percent also this year.
“Relative resilience of the CEE growth” was among the most often mentioned terms during the January investors’ conference held by Euromoney Magazine in Vienna.
Can CEE region completely ignore the global turmoil, which begins to be echoed with its major trading partners, though?
Gauge of the German business confidence, which spiked to the highest levels in one and half years as recently as in November, has in turn plunged to the weakest level in 12 months in January.
Assessment of the future expectations by the German entrepreneurs took the most severe month-on-month beating since the June of 2012. One should be reminded, that repeated annual decline of real GDP was subsequently recorded in Germany in the first quarter of 2013 (-0.5 percent). Mild double-dip recession re-visited also Czech Republic and Hungary at the turn of 2012-2013.
The forward-looking indicator of activity in the manufacturing of eurozone – based on the survey among purchasing managers – in January recorded the most severe month-on-month deterioration since August 2014. As recently as in December it was flying up at the best levels since April 2014. It was summer of 2014 which had seen the notable disruption of investors’ and business confidence in eurozone due to then escalating geopolitical tensions in the vicinity of the EU.
Nevertheless, these early concerns so far have not yet leaked through to the CEE: courtesy of the inevitable time lag in the transmission via the spinal cord of the foreign trade.
Forward-looking purchasing managers’ indices of activity in manufacturing in January recorded encouraging improvements in the Czech Republic (from 55.6 up to 56.9), as well as in Hungary (from 49.9 up to 53).
Gauge of industrial business confidence in Slovakia in January surged up to the strongest level since the beginning of 2011, in line with the trend of improvement in new industrial orders in the second half of the year.
Both the experiences from 2008/2009, as well as during double-dip recession in eurozone in 2012/2013 are very recent warnings against complacency with regards to the inevitability associated with the strong trade links between the small open economies of CEE and eurozone (Germany in particular). These instances have also reminded us the necessary time lag between the economic cycles of such vital trading partners.
As optimistic as the New Year started for the economies of the Central and Eastern Europe, it is yet to be seen how seriously the economies of Germany and eurozone might be affected by the arising turmoil in the global financial markets.
Only subsequently could the risks, which these developments pose for the “relatively more resilient growth in CEE”, be ascertained.
Vladimír Vaňo is Chief Analyst and Head of CEE Research with Sberbank Europe AG in Vienna.
10. Feb 2016 at 6:30 | Vladimír Vaňo