* Czech Rep. grows 1.1 pct q/q, 3.0 pct y/y
* Hungary grows 0.8 pct, 1.6 pct
* Slovakia up 0.9 pct, 3.7 pct
* Romania contracts, but less than expected
By Michael Winfrey
PRAGUE, Nov 12 (Reuters) - A German-backed manufacturing and
export revival in emerging central Europe lifted growth above
expectations in the third quarter, and the momentum should allow
some countries to avoid a previously expected year-end slowdown.
The open and export-heavy economies of Slovakia, the Czech
Republic and Hungary beat analysts' forecasts for July-September
growth, mainly on double-digit jumps in industrial output tied
to their key role in supplying a German exports surge to Asia.
Friday's data follow signs of a small pickup in household
spending in those countries. If sustained, that could signal
growth in industry could be feeding domestic demand, which
economists say would be the key turning point to recovery.
But it also indicates a two-speed recovery is underway, as
the countries on the EU's Baltic and Balkan fringes that had to
raise taxes and slash spending at the height of the crisis still
suffer from high unemployment, lower wages, and weak demand.
"Everything's surprising on the upside. The Czech Republic,
Slovakia and Hungary expanded more than we expected, while
Romania didn't contract as much as we had expected," said Neil
Shearing, an economist at London-based Capital Economics.
"Industry remains the key driver particularly. That's down
to strong ties with industry in Germany."
The Czech Republic led the way with growth of 1.1 percent on
a quarterly basis and 3.0 percent from a year earlier. It
eclipsed median forecasts in a Reuters poll that had expected
rises of 0.6 and 2.5 percent. []
Hungary grew by an annual 1.6 percent, beating market
forecasts of 1.1 percent. It was helped by a lower base and a
pickup in household consumption., which expanded for the first
time since early 2007. []
Romania also beat expectations, but only by shrinking a
less-than-expected 0.7 percent quarter-on-quarter. Following
austerity measures that are aimed at cutting the public spending
deficit almost 3 percentage points to 4.4 percent from
2009-2011, the economy is expected to shrink by around 2 percent
this year. []
Emerging Europe's currencies made limited gains, as the
growth data was tempered by renewed risk aversion on continued
concerns about the euro, the region's reference currency.
Hungary's forint <EURHUF=> was 0.45 percent higher on the
day at 1010 GMT. The Czech crown <EURCZK=> was up 0.06 percent
and the Romanian leu <EURRON=> 0.13 percent.
PRO-GROWTH VS AUSTERITY
Exports account for 60 percent or more of the Czech, Slovak
and Hungarian economies, and because Germany is their biggest
customer, that country's prospects are key to their recoveries.
The news there was mixed. Germany grew 0.7 percent
quarter-on-quarter, a slowdown from the previous three months
but one analysts said the quality of growth improved as private
consumption had increased.
That trend -- an improvement in household spending -- showed
possible signs of picking up slightly in central Europe, with
Czech retail sales growing 3.5 percent in September and
Hungarian domestic demand rising for the first time since 2007.
A different story, however, is unfolding in Romania,
Bulgaria, and the Baltic states, most of which have made
double-digit cuts to public wages and pensions to arrest their
slides into potential national bankruptcies earlier this year.
Bulgaria's gross domestic product grew 0.2 percent on an
annual basis after a 0.3 percent contraction from April to June,
while earlier this week data showed Latvia's economy grew 2.7
percent, it's first annual expansion in two years.
[] []
Although all countries showed better-than-expected third
quarter results, they are still suffering from the effects of
belt-tightening and their economies are still at least 10
percent smaller in nominal terms than before the crisis.
In the middle of all of this is Hungary, a country that has
the strong exports of the Czechs and Slovaks but is also
struggling to overcome a deep economic slowdown and years of
austerity measures.
Its government is eschewing belt tightening in favour of a
pro-growth strategy that includes taxes on banks, utilities, and
other mainly foreign firms and a transfer of private pension
contributions to state coffers.
The moves have shocked markets and cast a pall over the
business environment as companies have a cloudy view of future
tax regimes, but they will also ease the tax burden on consumers
while cutting the fiscal deficit.
"We may look back in 12 months and say the Hungarian
government's actions were not so bad after all, given that if
they had moved down the same way as Romania, we would have been
in a similar situation there," said Simon Quijano-Evans, an
economist at brokerage Cheuvreux.
(Editing by Toby Chopra)
