* Foreign demand boosts Czech, Hungarian trade surpluses
* Czech output up 9.7 pct y/y, retail sales leap
* Analysts cautious, say global demand still key to recovery
By Michael Winfrey
PRAGUE, Aug 6 (Reuters) - German demand helped Hungary and
the Czech Republic extend a manufacturing surge in June but
volatile domestic demand means the European Union's two most
export-oriented emerging economies are still at the mercy of an
uncertain global recovery.
Czech and Hungarian exporters are riding on a wave of global
orders for euro zone goods in which they play a crucial role in
the supply chain but economists said a potential double dip in
the United States and a slowdown in China could temper that
boom.
Recovering from double-digit falls in output in 2009 when
the global economic crisis thrust most of emerging Europe deep
into recession, the two neighbours are posting solid trade
surpluses based on booming exports.
Hungary posted a surplus of 566.9 million euros in June
<HUTRD=ECI>, data showed on Friday, above expectations and up
from a 423.6 million surplus in May. Other data on Thursday
showed output surged 15.2 percent from a year ago.
In the Czech Republic, where 32 percent of exports go to
Germany, manufacturing output jumped 9.7 percent from a year
earlier, contributing to a 10.4 billion crown ($552.3 million)
trade surplus in June. That was down from a 12.07 billion
surplus in May and below market forecasts due to a 28 percent
rise in imports, much of which are components for the
manufacturing sector.
Analysts said the data was positive, and driven by German
demand, although questions remained whether a recovery would
take hold in domestic demand. Domestic consumption has lagged
far behind export-based industries in both countries and is
expected to pick up only very slowly.
CAR SALES SURGE
Data on Friday showed Czech retail sales leapt 6.6 percent
on the year, the third rise in four months and well above
analysts' forecasts for 1.4 percent growth. However, growth was
mainly due to an 18.7 percent surge in car sales which analysts
said may have been spurred by car dealers offering discounts.
Analysts said weak wage growth and persistently high
unemployment would continue to keep the economic recovery mostly
limited to the export-based sector.
"We remain cautious as regards the performance of household
consumption," said Radomir Jac of Czech-based PPF Asset
Management. "Although the worst is over as regards unemployment,
wage growth remains muted and we expect de facto stagnation or
only a marginal increase in household consumption for 2010."
The Czech government expects economic growth of 1.6 percent
in 2010, overturning a 4.0 percent contraction last year.
Hungary expects growth of just 0.5 percent, versus a 6.3 percent
decline in 2009.
Gyorgy Barta, of Central European International Bank, said a
string of factors could now cause the pace of exports to weaken.
"The Western European recovery could be hindered by the
running out of one-off factors (inventory rebuilding, fiscal
stimuli), therefore a relapse in the uptrend is imaginable," he
wrote in a note. "Fiscal austerity programs abroad also pose a
downside risk to our export growth."
Much will depend on whether German demand in particular
continues to improve. Last month, German car maker Volkswagen's
<VOWG.DE> Czech unit Skoda Auto reported car sales rose 15
percent year-on-year in the first half to a record high, boosted
mainly by sales to Germany and China.
Skoda, the Czech Republic's biggest exporter, accounts for
about 5 percent of the country's total sales abroad.
In Hungary, where exports rose 23.2 percent in June,
outpacing a 19.8 percent rise in imports, nearly 80 pct of
shipments went to the euro zone, with Germany the biggest
market.
(Reporting by Michael Winfrey; Editing by Susan Fenton)
