* Czech industry shrinks 7.6 pct in Oct
* Hungary confirms 7.2 percent fall in October output.
* Czech Volkswagen unit Skoda moves to 4-day week in H1 '09
* Polish C/A deficit widens in October, exports fall
* Polish FinMin official sticks to 3.7 pct growth fcast
By Jana Mlcochova
PRAGUE, Dec 12 (Reuters) - The global crisis has tightened
its grip on industry-heavy central Europe, causing Hungarian and
Czech manufacturing to shrink 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 its economy brake swiftly 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
rapid 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.
Hungarian 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 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 she may 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 enact a four-day work week at factories for the first half
of next year, slashing time spent producing 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 Czech output, Skoda's 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.
Similar numbers showed the October trade gap widened more
than expected in Poland as well. Exports fell 1.2 percent
year-on-year, the first fall since the start of 2002.
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 seized 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.
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)
