* Czech exports show biggest drop in 6 years, point to slowdown
* Interest rates seen falling
* Hungary ups July trade gap, outlook bleak
By Jan Lopatka
PRAGUE, Oct 3 (Reuters) - The Czech Republic and Hungary posted poor trade
data on Friday, illustrating a bleak outlook for growth in the two catch-up
central European economies as demand in western markets sags.
The Czech foreign trade surplus shrank in August and exports slumped to a
six-year low, pointing to weakness ahead and a greater chance of an interest
rate cut in the near future.
In Hungary, the statistical office raised the July trade deficit figures,
and analysts spoke of a dismal outlook for the coming months.
Both countries are highly dependent on external trade for growth, and their
manufacturing sectors are deeply integrated into west European supply chains.
Gross exports equal to about 70 percent of Czech gross domestic product, a
higher proportion than bigger countries such as Poland that have larger internal
markets.
The Czech Statistical Bureau (CSU) said the trade account showed a 3.59
billion crown ($203.7 million) monthly surplus in August, below the 4 billion
expected in a Reuters poll and down from 7.24 billion in July.
Overall exports fell 8.1 percent, the worst figure since August 2002,
showing the highly open central European economy suffered from the strength of
its crown currency and the economic woes in the key export markets.
"The data confirms that the euro zone is slowing and that we are not
isolated in the middle of Europe," said David Marek, chief economist at Patria
Finance.
"The euro zone slowdown will impact the Czech Republic ... I think this
shows rates could go down faster than thought."
The outlook for lower central European growth has been marked by weak
manufacturing figures, illustrated by purchasing managers' indices in the Czech
Republic and Poland which have hit seven and nearly six-year lows, respectively.
CROWN HURTS
The crown weakened to a three-week low of 24.87 to the euro <EURCZK=> after
the trade figures, from 24.82 ahead of the data.
The currency has slumped from all-time highs of 22.925 seen in July but is
still 10.1 percent firmer year-on-year to the euro, squeezing exporters'
margins.
Officials at top firms have said the strong crown would lead to job losses
and production falls, and have been -- unsuccessfully -- lobbying the government
to set a clear path for euro adoption.
The country's growth dropped to 4.6 percent year-on-year in the second
quarter from 6.6 percent in the whole of 2007. The central bank forecasts a
slowdown to 3.6 percent next year but said on Friday even that prediction may be
too optimistic.
The bank was the first in central Europe to cut rates last month, by 25
basis points to 3.5 percent, and analysts expect another quarter-point reduction
in November as the inflation outlook improves.
HUNGARY DEFICIT HIGHER
Hungary raised its July trade deficit to 365.1 million euros from the 238.6
million euros reported previously and a 89.7 million euro surplus in June.
"Export has not changed at all in the revised figures, but in imports there
was a significant upwards revision... probably gas reserves were filled up in
that month," said Gergely Suppan, analyst at Takarekbank.
"But the export outlook remains dismal, I revised my economic growth
forecast for 2009 downwards to 2.3 percent just recently but all we see in
Europe increases pressure for further downwards revision."
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(Additional reporting by Sandor Peto, editing by Mike Peacock and Andy Bruce)
