* Czech industry shrinks 7.6 pct in Oct, worst since start of series in 2001
* Hungary confirms 7.2 percent fall in October output.
* Czech Volkswagen unit Skoda moves to 4-day week in H1 '09 on low demand.
* Polish FinMin official sticks to 3.7 pct growth fcast, sees downside risk.
By Jana Mlcochova
PRAGUE, Dec 12 (Reuters) - The global crisis has tightened its grip on
industry-heavy central Europe, causing Hungarian and Czech industry to contract
and forcing the latter's biggest producer to shift to a four-day work week until
mid-2009.
Hungary is facing recession and analysts said the Czech Republic, which has
seen growth slam on the brakes due to a collapse in demand from the euro zone,
is flirting with growth below 2 percent or less next year, versus 6.6 percent in
2007.
Market watchers said they expected the impact to prompt swift cuts to
already falling interest rates. They also said the Czechs should join other EU
states in stimulating the economy through public spending, a move they have so
far resisted.
Data showed on Friday that Czech October industrial output fell 7.6 percent
versus the previous year, the worst result since the statistics office began its
current data series at the start of 2001.
"The number is negative and clearly shows the recession in the euro zone is
impacting the Czech economy faster and more strongly than expected so far," said
David Marek, an analyst at Patria Finance.
In Hungary, data confirmed industry shrank 7.2 percent in October, with new
orders down around 11 percent on both export and domestic orders.
Manufacturing firms there took the hit earlier than the Czechs and have been
laying off workers by the thousands in recent months, while the government has
also been forced to turn to the IMF and European Union for a $25 billion
bailout.
Central Bank Governor Andras Simor forecast up to 100,000 new layoffs in
2009, which would carry the country's 7.7 percent unemployment rate above 10
percent.
The news did not help Central European currencies and stocks, which extended
morning falls after already coming under pressure from the collapse of a U.S.
auto sector bailout [].
INDUSTRY IN RECESSION
The problem is spreading. In Poland, the region's largest economy, analysts
expect output to have contracted by 5.1 percent in November, versus 0.2 percent
growth in October.
On Friday, Polish deputy Finance Minister Katarzyna Zajdel-Kurowska stuck to
the government's 3.7 percent growth forecast, widely seen by analysts as
optimistic [].
But in a signal that she did see some downside risk, she said growth "for
sure" would not be below 3 percent in 2009.
The Czech Republic's largest producer and exporter, Volkswagen unit Skoda
Auto <VOWG.DE>, said on Friday that because of the collapse in demand for cars
in western Europe it would cut the number of workdays to four at its factories
in the first half of next year, slashing production by a fifth.
French car sales dropped 14 percent last month, while Germany posted an 18
percent decline. With the cars making up 20 percent of total Czech output, the
Skoda shift will hit car parts makers and other suppliers, hammering the
backbone of Czech exports.
Central bank Governor Zdenek Tuma has said he sees next year's growth at 0-3
percent, below the bank's official forecast for a 2.9 percent. Some analysts
have even warned the Czechs could face the brink of recession.
"Growth will probably be significantly lower ... close to a zero, somewhere
just below 1 percent," said Citibank analyst Jaromir Sindel.
Separate data also showed the Czech current account posting a
worse-than-expected deficit of 21.99 billion crowns ($1.12 billion) in October,
the worst result since June, mainly caused by a trade deficit of 630 million
crowns.
SLASHING POLICY
Patria's Marek said the poor industry showing would prompt the Czech central
bank to slash interest rates by half a percentage point from their current 2.75
percent -- and more cuts later -- following a full point in cuts since August.
Hungary, too, is expected to follow up on a surprise 50-basis-point cut last
week which took its benchmark rate to 10.5 percent -- backtracking from a hike
of 300 basis points in October to prop up the forint currency.
But analysts said looser policy would not necessarily stabilise volatile
currency markets or unfreeze debt markets and interbank lending that have
virtually locked up since the collapse of U.S. bank Lehman Brothers in
September.
"It's all about confidence and global risk aversion... 100 basis points here
or there is not going to make a big difference," said Neil Shearing, an
economist at London-based consultancy Capital Economics.
Another problem is that plummeting growth will hit tax revenues and drive up
budget deficits. That could be exacerbated by potential fiscal stimulus packages
to jump start the slowing economies.
So far that has been a topic of heated debate in western Europe and a step
that so far the Poles have indicated they do not want to follow and the Czechs
have said they will avoid unless growth will fall to below 2 percent.
"It is necessary to prepare, as quickly as possible, some stimulus that
would help both export firms and the Czech economy in general," Patria's Marek
said.
(Writing by Michael Winfrey; Editing by Andy Bruce)
