* PMI extends declines in Czech Republic, Hungary
* Poland bucks trend but outlook still grim
* Euro zone contraction weighs heavily on region
WARSAW, Feb 2 (Reuters) - Manufacturing activity in Hungary
and the Czech Republic tumbled faster in January, key surveys
showed on Monday, and though Poland's pace of decline eased,
analysts do not expect it to defy the regional trend for long.
The surveys reinforced the sense of gloom in once-booming
ex-communist central Europe, where authorities have slashed
growth forecasts and cut interest rates in the face of deepening
recession in the euro zone, the region's main export market.
The Czech Purchasing Managers' Index (PMI) slumped to a
record low 31.5, from 32.7 in December, falling below the
critical 50.0 mark for the seventh consecutive month, Markit
Economics said, underlining Prague's vulnerability to Europe's
downturn.
"It is clear that because they are such an export-oriented
and open economy and because this is a manufacturing-focused
indicator the Czechs were going to be one of the most affected
in January," said Martin Blum, emerging strategist at Unicredit
in Vienna.
Hungary's seasonally-adjusted PMI fell to 38.6 in January
from 40.8 in December, the Association of Logistics, Purchasing
and Inventory Management said, the lowest index reading since
the association began publishing data in September 1995.
Poland, the European Union's largest ex-communist economy,
notched up a reading of 40.3 points last month, up from an
all-time low of 38.3 in December, Markit Economics said, the
first such rise since February 2008.
But analysts said the reading was likely to prove a
temporary move and that industrial output and other key data all
pointed to further decreases in PMI in coming months.
"Though slightly improved from the exceptionally weak
December data, the latest survey findings underline the
headwinds confronting Polish manufacturers in January," said
Trevor Balchin, economist at Markit Economics.
RATE CUTS SEEN
"Output, new orders and employment all contracted sharply
and, overall, the first batch of 2009 PMI data point to further
aggressive rate cuts by the central bank in the first quarter
following greater than expected falls in the main policy rate in
both November and December," said Balchin.
Poland's central bank has slashed interest rates by 175
basis points since November, including a bigger-than-expected
cut of 75 basis points last week, to offset the slowdown.
Though less reliant on exportsthan smaller neighbours such
as the Czech Republic, Poland too is heavily affected by
developments in the euro zone.
"The domestic economy should start improving when there is
improvement in the euro area. And this, unfortunately, will not
happen soon," said Piotr Bielski, senior economist at Bank
Zachodni WBK in Warsaw.
In other data released on Monday, German manufacturing
contracted at its fastest pace in more than 12 years in January
on further slumps in demand. Overall euro zone manufacturing
business shrank at a slightly slower pace last month.
As with Germany, the Czech data showed particular weakness
in the automobile sector.
Finance Minister Miroslav Kalousek said on Monday a
contraction in the Czech economy could not be ruled out in 2009,
challenging his own ministry's revised forecast of 1.4 percent
growth made just last week.
"We have no certainty that growth is not minus one, minus
two percent," Kalousek was quoted as saying by the daily
Hospodarske Noviny.
In Hungary, the weakest economy of the region which was
forced to negotiate an IMF bailout last autumn, analysts tried
to discern some light in the gloom.
"The pace of deterioration was smaller than in previous
months, suggesting we may be nearing the bottom in confidence in
the coming months," said Gyorgy Barcza of K&H Bank in Budapest.
"However, incoming industrial production figures could
remain very weak, so growth risk could still be on the downside,
which will not be good news for the currency," he added.
The forint, badly battered last week, traded a shade firmer
on Monday though still near an all-time low of 299.30 to the
euro. Poland's zloty and the Czech crown were also steady.
(Reporting by Prague, Warsaw, Budapest bureaux, writing by
Gareth Jones, editing by Stephen Nisbet)
