Page 9 - bne_newspaper_August_17_2018

Central Europe
August 17, 2018 www.intellinews.com I Page 9
CEE boom passes peak
Ben Aris in Berlin
The boom Central and Eastern Europe (CEE) has been enjoying for the last four years has reached its peak as countries in the region start to run up against their structural limits.
While all the countries are still enjoying robust growth, the rate of expansion is starting to
slow and in some cases has begun to fall. The main break on development is a growing labour shortage in the region, but more insidious is the lack of investment into new technologies and a reengining of businesses to go up the value added chain that will take longer to
make itself felt.
Six economies in Central and Eastern Europe released second quarter GDP data this month: Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia. The data showed that regional growth slowed for a third straight quarter, weakening from 4.6% y/y in Q1 to 4.3% y/y in the second quarter – down from a peak of 5.6% y/y in the third quarter of 2017, reports Capital Economics.
“Detailed breakdowns of the data have yet to be released. But monthly activity data show that weaker growth in Q2 was widespread across sectors. After a sharp rebound in 2017 on the back of a recovery in EU structural fund inflows, growth in construction output slowed markedly in Q2. Meanwhile, continued softness in euro- zone manufacturing weighed on CEE industry. And retail spending weakened a touch — higher oil prices may have tempered consumer demand,” Capital Economics said in a note.
Its been a fun ride as bne IntelliNews pointed out in a cover story “CEE booms” last year but now the countries in the region will return to more levels of growth.
The Romanian economy already started to slow sharply at the end of last year, while the Czech economy slowed the most this quarter. Poland put in a small growth, however, economists are warning that the peak has passed and expect all the economies of the region to slow as the rest of the year plays out. Acute labour shortages that are causing wage inflation and the slow progress manufacturers are making in moving up the value chain is limiting the further growth of countries in the region.
“We think that the gradual slowdown in CEE GDP growth will continue over the course of 2018 and into 2019. Higher inflation and interest rates, as well as less supportive fiscal policy in parts of the region, will probably take the steam out of domestic demand. And weaker demand from the euro-zone and mounting capacity constraints will weigh on net trade. We expect CEE growth
to average around 3% in 2019,” said Capital Economics.
GDP growth slowing but still strong
The Czech Republic was worst affected this quarter. Czechia’s economic growth decelerated to 2.3% year-on-year in the second quarter of 2018 from 4.2% growth in the first quarter as the economy runs up against its structural limits, the Czech Statistics Office (CSU) said on August 14. The main reason is a strong base effect from the