* Industry and exports main driver of CEE growth
* Hungarian, Romanian data better than expected
* Czech growth disappoints
* Domestic demand still problem, fiscal cuts to weigh
By Michael Winfrey
PRAGUE, May 12 (Reuters) - A surge in industrial orders from
Western Europe drove growth in the European Union's emerging
east in the first quarter, but analysts said looming fiscal
tightening will keep the expansion muted for most of the year.
Healthy euro zone demand for manufactured products since
late last year helped Hungary and Romania post better than
expected data from January to March, but the Czech economy
showed weaker than forecast growth.
Data released on Wednesday showed Hungarian gross domestic
product grew 0.1 percent when compared to a year earlier, versus
market expecations of a 2.1 percent fall, while it expanded 0.9
percent versus the last quarter of 2009.
Romania's economy shrank 0.3 percent on the quarter, also
beating expectations, but the Czech Republic showed growth of
only 0.2 percent, less than analysts' forecast of 0.4 percent.
Although the Hungarian and Romanian data was better than
expected, analysts said it was mainly due to western European
companies restocking inventories, but weak consumer demand in
the euro zone meant a sluggish recovery for emerging EU states.
"There seems to be a lot of scope for some significant
bounceback just, if anything, linked with the inventory cycle,"
said David Oxley from Capital Economics.
"Everything else is still stacked up against the recovery,
not least the very slow recovery in the euro zone."
Other data showed Bulgaria's consumption-based economy
slowed its economic decline to 4.0 percent versus a year
earlier, while euro zone member Slovakia continued its gradual
recovery, growing by 0.8 percent on the quarter. []
Data from western European countries, including the main
export market for the East, Germany, showed lacklustre expansion
in the first three months. []
The data helped emerging European currencies win back some
overnight losses on Wednesday, but persisting worry over the
debt crisis shaking the euro zone periphery capped gains.
The Czech crown <EURCZK=> was up 0.3 percent versus the euro
by 0754 GMT and Hungary's forint <EURHUF=> inched up on the day
to 274.17.
FISCAL TIGHTENING AHEAD
Hungary's quarterly expansion was the second in a row and
analysts said the country had finally put behind it six quarters
of recession dating back to the middle of 2008.
Although the figures were just flash estimates and no
country released details, data has shown output and exports
rising for the last quarter. Hungary's exports grew 17 percent
on the year in the first quarter and industry was up 5 percent.
Romanian industry grew 5.2 percent in March, and Czech
output jumped 10.2 percent, with the biggest Czech company,
Volkswagen-owned <VWOG.DE> Skoda Auto, showing a 25 percent rise
in sales in the first quarter.
But with the inventory restocking cycle seen over, analysts
said emerging Europe had a difficult task to grow more,
especially because many countries must slash budget deficits
that have swollen to record levels during the recession.
In Romania, the government has agreed a wider fiscal deficit
target as part of an International Monetary Fund emergency aid
agreement but has also pledged to slash the public sector wage
bill by 25 percent in June. []
The Czech government has said fiscal cuts are necessary to
prevent missing its 5.3 percent of GDP deficit target this year,
while Hungary's incoming government has said it aims to cut a
budget gap it says could hit 7.5 percent of GDP this year.
Analysts said that would undermine already weak domestic
demand that has seen sluggish growth in retail sales and very
poor construction figures out of the region.
"Export-oriented industry shows very clear growth, while the
rest of the economy is falling behind," said Peter Szabo, a
statistician from the Hungarian state statistics bureau.
"The construction sector is on life support, only kept alive
by a few big state projects. The retail index was a negative 7.5
percent, and added value has been falling in a similar
fashion... Domestic consumption is not growing."
(Reporting by Reuters bureaus in Hungary, Romania and the Czech
Republic; editing by Stephen Nisbet)
