Page 40 - bne_Magazine_September_2018

40 I Central Europe bne September 2018
unemployment rate has fallen to 3.1%
in July – one of the lowest in the region
– and has been contracting every month for the last five months. Analysts expect unemployment to decrease again in the coming months to fall below the 3% mark – less than the structural minimum unemployment associated with a boom- ing economy that enjoys full employment. This will put further pressure on wage growth, which expanded by 8.6% y/y in 1Q – the fastest rise in the past 10 years.
Romania is facing similar problems. Romania’s seasonally-adjusted ILO unemployment rate dropped by 0.4pp y/y to 4.5% in June, the INS statistics office reported on July 31. The Romanian unem- ployment rate has been on a downward trend in recent years helped by the boom- ing economic growth last year. Three quarters of Romanian companies reported this month they were prepared to hike wages by 15% in several key sectors as they struggle to find enough labour.
Demand fading
Retail sales are also slowing in the region. Polish retail sales have started to slow, expanding by 4% y/y in constant prices in April, the statistics office GUS announced on May 23. The reading sees sales drop 4.8pp compared to the pace of annual growth recorded in March, likely owing to buying activity slowing down in April after heightened consumption linked to Easter took place in March. The ban on Sunday retailing also played a role, as last month only one Sunday was open for retail.
Czech retail sales disappointed in June, falling from record highs a month earlier, the government statistics agency reported on August 6. Seasonally adjust-
ed sales stagnated month-on-month in June due to rising inflation, hot weather, increasing prices of housing and fewer working days. “Slower growth can be also attributed to a weakening taste of consumers to spend money. Consumer confidence has decreased over the last two months in a row after a record-
also to the unexpectedly good perfor- mance in the energy sector, analysts say.
Czech industrial production also posted a 3.4% expansion at constant prices in June, following 1.4% growth in May. The main drivers were the energy and engineering sectors, the CSU said on
Central & Eastern Europe GDP (seasonally-adjusted)
“Slovakia is now facing its highest job vacancy rates in a decade”
breaking high in May,” said Raiffeisen- bank analyst Jakub Cervenka.
Romania’s retail sales increased by 6.6% y/y in Q2, a marginal improvement from the 6.4% y/y in Q1, but the result was still only half the 13% y/y growth in retail sales seen in the same quarter a year earlier, according to the national statistics office.
Industrial production down
Falling demand and labour problems
are threatening industrial production growth, which has already started to fade in some countries of the region, but the boom years have created momentum, and individual industries are holding up industrial expansion in several countries in the region for the meantime.
Poland has bucked the trend, delivering a positive surprise in July after post- ing an unadjusted 6.8% y/y growth
in industrial production for June. The headline figure beat consensus, which expected growth to come in at only slightly above the 6% mark. The accel- eration of growth in June – after expan- sion of 5.4% y/y in May – once again owes its cause to calendar effects, but
August 6. But some analysts are warning that Czech industrial production growth is capped by insufficient capacity and labour to expand further.
Romania’s industrial production index increased by only 1.2% y/y in May and the average growth rate calculated for the rolling three months eased to 2.1% y/y – the weakest performance since September 2016. Romania’s industry shows signs of fatigue after it expanded by 7.8% y/y in 2017, which was the best performance in the post-crisis decade.
Time to step up the value added ladder
A lack of investments in key industries is the limiting factor in most of the economies in the region. A lot of investment has gone into all the countries of the region, but most of it was targeting basic infrastructure that the previous socialist governments failed to build, and then building light manufacturing facilities that provided work for the first post-socialist generation.
Now the game has changed an entirely different wave of investment needs to start to take the economies of the region up to the next step on the value added ladder to build more sophisticated indus- tries and develop new technologies.
In a country like Romania, which is fur- ther behind than its Central European peers, the challenge is easier as it still has a lot of growth available in areas like the food processing industry.
At the same time poor structural reforms will limit growth, and here backtrack- ing on liberal reforms in countries like Poland and Hungary will turn into prob- lems in the future.
Rank
Bulgaria
Hungary
Czech Rep.
Poland
Romania
Slovakia
3Q17
+3.9 (+0.9)
+4.3 (+1.1)
+5.2 (+0.7)
+5.4 (+1.4)
+8.4 (+2.2)
+3.5 (+0.9)
4Q17 +3.5 (+0.7)
2Q18 +3.4 (+0.8)
+4.9 (+1.3)
+4.4 (+0.9)
%y/y (% q/q)
+5.5 (+0.8)
+2.3 (+0.5)
+4.4 (+1.0)
+5.0 (+0.9)
+6.6 (+0.3)
+4.2 (+1.4)
+3.6 (+0.9)
+3.9 (+1.0)
1Q18
+3.6 (+0.9)
+4.7 (+1.2)
+4.5 (+0.5)
+5.0 (+1.6)
+4.3 (+0.1)
+3.7 (+1.0)
Sources: National Statistics Offices, Capital Economics
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