By Jana Mlcochova
PRAGUE, Dec 8 (Reuters) - A grim set of Czech and Slovak
data showed economic activity in central European economies is
slowing faster than expected, driven by a euro zone recession.
Czech October foreign trade showed an unexpected deficit as
exports to western Europe dwindled.
The trade shortfall of 3.95 billion crown ($196 million) was
the worst monthly figure since December 2005. The market had
expected a 7.7 billion crown surplus [].
A separate set of data showed Slovakia's industrial
production was flat on the year in October, the weakest
performance since March 2005 and below the market's forecast for
a 4.7 percent rise [].
"We now expect Hungary, the Czech Republic, and Slovakia to
show a contraction next year," said Miroslav Plojhar, a
London-based analyst at JP Morgan.
He said the bank had changed its central European forecasts
from the beginning of the year when it had assumed western
Europe, the region's main trading partner, would not fall into a
recession as quickly as it has.
Central European governments and central banks have been
slashing their growth forecasts for next year but none, with the
exception of Hungary, expects a contraction.
The Czech central bank predicts a 2.9 percent growth rate in
2009 although its chief Zdenek Tuma has said that expectation
may now look rosy.
PENDING CZECH RATE CUT
Czech consumer prices slumped by half a percentage point in
November, their weakest performance in two years, strengthening
the case for further interest rate cuts as price pressures
swiftly abate. []
The monthly price drop came on the back of plunging fuel
prices and cheaper food. It was in line with market expectations
in a Reuters poll, and put year-on-year inflation at 4.4
percent, sharply down from 6.0 percent in October.
The figure came far below the central bank's estimate for a
5.5 percent annual rate.
"All the data released this morning are sending a clear
message: the Czech central bank has a lot of room for further
interest rate cuts," said Radomir Jac, chief analyst at Generali
PPF Asset management in Prague.
"The performance of machinery and transport equipment
exports says that the Czech economy is heavily hit by recession
in western Europe and economic slowdown in emerging markets
economies, and the picture will remain bleak well into the first
half of 2009."
The central bank slashed interest rates by a hefty 75 basis
points to 2.75 percent last month, and Czech rates now stand 25
basis points above those of the European Central Bank. The Czech
bank next meets to discuss rates on Dec. 17.
Nominal exports slumped by 10.7 percent year-on-year in
October, while imports dipped by 5.9 percent.
The central European economy has been highly dependent on
foreign trade for its wealth catch-up with western Europe.
But companies in the big automotive sector, led by
Volkswagen's <VOWG.DE> Skoda Auto, have been announcing work
stoppages and job cuts as foreign and domestic orders dry up.
A separate unemployment report showed the Czech jobless rate
rose to 5.3 percent in November from 5.2 percent in the previous
month. []
(Editing by Stephen Nisbet)
