Eastern Europe boom cools

Eastern Europe boom cools

The eurozone economy grew faster in the second quarter than initially reported, suggesting some of the worries may have been overdone, while the boom in the big economies in eastern Europe, such as Poland, may be easing.

Eurozone expansion was revised up to 0.4% from 0.3%, Eurostat said. Growth in Germany and the Netherlands gathered pace in the three months through June, keeping solid momentum in the overall currency region despite global trade tensions.

While strong domestic demand has shielded the region so far from the worst effects of protectionism, companies are increasingly concerned about business prospects. There’s also turmoil in Turkey and in other emerging markets.

Germany’s better-than- expected growth of 0.5% was bolstered by an increase in private and government spending.

Equipment investment and construction gained “somewhat”, the country’s statistics office said. Eurozone industrial production fell 0.7% in June, according to a separate Eurostat release. The spectre of a trade war still looms large, even after the EU and US pledged not to introduce new levies as long as negotiations to lower trade barriers are ongoing.

“The recent agreement in the trade dispute between the EU and the US has led to a considerable rise in expectations for Germany and also, to a lesser degree, for the eurozone,” said Achim Wambach, at the ZEW Centre for European Economic Research.

Carmakers including Volkswagen, Daimler, and BMW have warned against the fallout of trade tensions, though some other German companies have expressed optimism. Heidelberg Cement confirmed its outlook for 2018, and cargo container shipping company Hapag-Lloyd predicted a better second half and said trade tensions haven’t yet left a mark on business.

Meanwhile, the boom that began to take hold four years ago in Europe’s eastern states is fading. Second-quarter growth dipped from a peak at the start of the year in Poland and the Czech Republic, the region’s two biggest economies, while Hungary, Romania, and Slovakia managed quicker expansions.

Headwinds include higher borrowing costs, a dearth of workers, and this year’s slowdown in the eurozone, the main export market. Growth in Polish GDP slowed slightly, to 5.1%, and Czech GDP cooled to 2.3%. Hungarian GDP growth unexpectedly quickened to 4.6%.

Bloomberg

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