CEE economies continue to expand at strong rate in Q2, likely to continue growing strong in years ahead

The CEE region’s economic growth continued at a strong rate, owing to accelerated absorption of the EU funds and high private consumption growth underpinned by labor market tightening. The strong growth in the first half of this year also hiked the projections of the full-year growth reached in the region.

Polish, Hungarian and the Czech economies are recording strong results in 2017. The second quarter economic growth accelerated to 3.9 percent year-on-year, 4.5 percent year-on-year and to 3.2 percent year-on-year in Poland, Czech and Hungary respectively. The Czech economic growth figures surprised on the upside as the consensus expectations were for the economy to grow 2.9 percent year-on-year. This led to a slightly strengthening of the Czech koruna.

Meanwhile, Hungarian economic growth came in below consensus expectations of 3.7 percent, where a deceleration from 4.2 percent year-on-year in the first quarter was noted. Growth was mostly widespread and underpinned particularly by private consumption and higher absorption of the EU funds.

Private consumption growth is nearly at a level of 5 percent year-on-year in Poland as well as in Hungary, while it is slacking slightly in Czech Republic where it barely goes beyond 2.5 percent year-on-year growth. It is mainly underpinned by continued tightening on the labor market with jobless rates reaching one of the lowest levels witnessed in the history of all three nations.

In the meantime, all of the economies showed signs of increased EU funds absorption, which is expected to continue underpinning growth in the region until the next portion of the EU funds will be redistributed. The strong growth in the first half of the year also poses upward risks to the current full-year GDP growth projections, which might come closer to 4 percent year-on-year in Czech Republic and Poland.

“We expect the strong growth pace in the CEE countries to continue in the coming years”, noted Nordea Bank in a research report.

In the medium risks, the economic risk that should be underlined is particularly the lower allocation level of the EU funds targeted at the CEE economies. The final outcome of Brexit-deal is expected to negatively impact the overall total amount of funds available due to lack of British contribution and the allocation might be directed at the newer members such as Romania, Bulgaria or Croatia. The risks are even higher because of the disputes between CEE-3 and the EU about rejection to take in refugees and increasing tensions in the EU-Polish relations that were triggered by the recent judicial reforms and led to a start of infringement procedure, stated Nordea Bank.

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