* Slovak inflation hits record low 0.6 pct
* Romanian CPI hits 2-yr low 4.9 pct, rates seen easing
* Czech industry falls 8.4 pct in Aug
By Michael Winfrey
PRAGUE, Oct 12 (Reuters) - Wounded domestic demand in
central and Eastern Europe pushed inflation to new lows in
Slovakia and Romania last month, but a slide in export-driven
output appeared to be easing, data showed on Monday.
Following a first wave of crisis that crushed western demand
for goods produced in the European Union's export-heavy East, a
second stage of higher unemployment, stagnating wages, and tight
credit is now barrelling through the region.
Although improving data from the euro zone has prompted
cautious optimism recovery may be near, analysts are reticent on
its potential pace and expect central and eastern Europe to face
a years-long slog before it returns to high growth.
The crisis has caused government deficits to balloon and
central banks from Warsaw to Belgrade to slash interest rates,
but such moves have only tempered the fall in consumer demand
and some analysts say certain countries may even face deflation.
The September data illustrated that, with euro zone-member
Slovakia's inflation falling to an all-time low of 0.6 percent
and Romania's hitting a two-year low of 4.9 percent.
Although Slovak prices will have little impact on euro zone
rates already at 1 percent, in Romania, where the government is
undertaking IMF-prescribed belt-tightening reforms, they could
lead to further cuts to the official cost of borrowing soon.
"I keep my estimate for a 50 basis point rate cut at the
next monetary policy meeting, because consumption will remain
low in the next months, exerting a strong disinflation
pressure," said Melania Hanncila of Volksbank.
She echoed the consensus in which most of her colleagues
expect the central bank to reduce rates by half a point from 7.5
percent. Other countries are also seen easing rates.
HOME/ABROAD
Like in richer western Europe, unemployment has risen to
multi-year highs from Bohemia to the Black Sea as companies shut
production lines and furlough workers. That has caused wage
growth to stall and hit prices.
Last week, the Czech Republic reported a 0.4 percent fall in
consumer prices from September to August and zero annual
inflation, prompting some analysts to say they expected the
central bank to cut rates from a record low 1.25 percent.
Hungary will release its inflation data on Tuesday. The
market's forecast is for 5.3 percent price growth, despite a
consumption tax hike in July. Analysts expect policymakers to
cut rates from 7.5 percent after 2 points of cuts since July.
The fall in household demand has also caused external
imbalances in states like Romania, Bulgaria and the Baltics to
correct sharply as consumers hit by tighter credit, layoffs and
government spending cuts stop buying goods from abroad.
Parallel data on Monday showed Romanian imports plunged 37
percent on the year in August to shrink the country's trade
deficit, one of its largest economic headaches, by 62 percent.
Foreign demand, meanwhile, showed signs of improvement in
Czech August industry numbers. It was the least-worst
performance since mid-2008, when the country still looked poised
to sidestep the economic crisis and recession.
Czech industrial output was down 8.4 percent versus a year
earlier in August, versus an 18.2 percent fall in July. The
result also showed growth of 4 percent from the previous month.
Analysts say the region -- a major origin of cheaply made
cars by western countries -- has been helped by scrap subsidies
in their main markets in the euro zone. But some of those
schemes, particularly in Germany, have ended, putting a question
mark over production figures for the next several months.
"The (Czech) August industry results are hopeful -- after
many months it is the first serious monthly growth," said Pavel
Mertlik, chief economist at Raffeisenbank in Prague.
"But at the same time it is the first green shoot, which by
itself will not bring spring... We expect real improvement only
at the end of 2009 and the start of next year."
(Editing by Toby Chopra)
