Economic growth in new European Union countries jumped last year as they shipped more goods through the newly open borders to the west and felt the benefits of economic reforms, data showed on Thursday.
Soaring exports propelled Czech economic growth to 4.3 percent in the last quarter of 2004, its best quarterly result in eight years, and Slovakia reported a 5.8 percent jump.
Hungary released an updated estimate showing 3.8 percent fourth quarter expansion, and Poland is expected to report a 4.1 percent on Friday.
While the sources of growth varied, all the central European countries took another step towards bridging a wealth gap separating them from the rich western European neighbours.
The euro zone, which the open central European economies want to join by the end of the decade, grew by 1.6 percent in the fourth quarter.
"The story in Czech and Hungary is that there is reasonably weak household consumption and stronger than expected export growth," said Oliver Weeks, an economist at Morgan Stanley. "We can see a positive impact on exports from (EU) accession."
This year, investments could pick up in the region thanks to EU funding, while stronger currencies and a high comparative base could somewhat dampen export growth, he said.
EXPORT JUMP
The region has benefited from foreign investment in manufacturing, mainly the car industry, attracted by cheap labour, government aid and proximity to western markets.
The fourth quarter Czech growth beat market expectations of 3.95 percent and put full-year 2004 growth at 4.0 percent.
"The European Union entry had positive impact on GDP growth, being shown in more simple access of Czech goods to the union's markets," Deputy Prime Minister Martin Jahn said.
The Czech growth structure showed there were no demand-side inflationary pressures in the economy and helped cement market expectations that the central bank would shave another quarter point off interest rates when it meets at the end of the month.
"The overall dynamics are not surprising, but domestic demand is even weaker than we had expected. A rate cut is a done deal," said Daniel Kozel, an analyst at Komercni Banka. "The (GDP) structure allows low interest rates and a relatively strong crown."
Hungary slightly raised its fourth quarter growth estimate, with exports again being the main driver, and softer domestic demand.
"We are looking at soft growth-soft inflation scenario, which increases pressure on the central bank to ease monetary policy," ABN Amro said in a report.
Slovakia, where imports jumped due to companies fitting new factories with foreign technology, had a more consumption-based growth last year. But given the soaring crown currency, interest rates there are also on a downslope.
Currencies across the region dropped in morning trade, but that was a reaction sparked by a sell-off on bond markets initiated by losses in U.S. Treasuries.
Source: Reuters
11.03.2005