(Bloomberg) — Economies in Poland and Romania stumbled as weak consumer demand was compounded by stagnation in Germany, adding to a picture of struggling growth across the European Union’s east.
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Poland’s gross domestic product unexpectedly contracted by 0.2% in the third quarter compared to the previous period, after economists had forecast a 0.3% expansion. In Romania, growth stagnated as weak consumption sapped a raft of government spending on infrastructure and social benefits. Slovakia’s economy expanded 0.3%, as last quarter.
Eastern European economies have relied on domestic consumption as a lifeline to stay afloat as Germany, the region’s main trading partner, is struggling to avoid recession. The prognosis could worsen if US President-elect Donald Trump follows through on pledges to raise tariffs.
The trend was evident elsewhere. While the Czech Republic managed to grow in the third quarter, Hungary unexpectedly slipped into a recession, as domestic consumption failed to make up for a deep downturn in industrial production, according to data released over the last month.
Consumer demand has been dwindling in Poland, the region’s biggest economy, whose growth until recently was fueled by consumption. Jon Eastick, chief financial officer at Poland’s largest internet marketplace Allegro.eu SA, told Bloomberg that more advertising spending was needed to sustain growth amid the unusually soft demand.
As the region emerges from the biggest spike in inflation in nearly a quarter century, economists suggest many consumers are bolstering their savings before making bigger purchases. Individual bank deposits have increased 7.4% in the year through September, while investment funds have seen inflows every month this year, according to data complied by the Analizy.pl portal.
‘A Major Risk’
“Households, despite the improving financial situation and favorable labor market, choose not to increase spending and prefer instead to save in uncertain times,” Monika Kurtek, chief economist at Bank Pocztowy said in a note, calling third-quarter data a “disappointment.”
The economic outlook in Hungary is grim, according to Andras Savos, president of the German-Hungarian Chamber of Commerce. A survey by the group showed that only 9% of German-owned companies in Hungary expect an improvement, while 51% predict a deterioration. Trump’s return to the White House could worsen the outlook if a trade war is on the horizon.
“The tariff regime that Trump promised is expected to hit the German economy very hard, and an even weaker German growth dynamic would have a whiplash effect in Hungary,” Savos said at an event in Budapest Thursday. “It is a major risk.”
In Romania, the government bumped up social spending and investment ahead of the presidential and parliamentary elections this month and in December. The budget deficit is now likely to widen beyond 7% of economic output this year, putting the pressure on the next administration to potentially raise taxes to trim the shortfall.
Economic growth should improve “in the second half due to a large growth impulse from Romania’s loose fiscal stance,” Kevin Daly, a London-based economist at Goldman Sachs, said before the data release.
Romania also faces one of the highest inflation rates in the EU, prompting the central bank to keep borrowing costs steady at 6.5% at its last two meetings.
–With assistance from Barbara Sladkowska, Irina Vilcu, Wojciech Moskwa, Konrad Krasuski, Marton Kasnyik and Daniel Hornak.
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Publish date : 2024-11-14 05:23:00
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