* Czech, Romanian output strong, points to recovery
* Czech retail sales recover after 17 months of falling
By Jana Mlcochova
PRAGUE, May 7 (Reuters) - Czech and Romanian output data
showed a strengthening recovery in eastern Europe, driven by
exports as well as signs of revival in domestic demand, that
cast doubt over the need for the monetary stimulus provided by
Czech policymakers this week.
Czech industrial output rose 10.2 percent, above a forecast
8.5 percent rise, as orders picked up on rising demand in the
Czech Republic's biggest trading partner, Germany.
Retail sales rose 3.9 percent year-on-year in March, the
first rise after 17 months of contraction and significantly
above forecasts for a 0.1 percent expansion.
Romanian adjusted industrial output rose 5.2 percent
year-on-year in March, and reversed a 2.5 percent monthly
contraction in February to a 3.6 percent growth, a good signal
in a country tapping an IMF aid.
The data bodes well for the region, showing the Greek
turmoil has not affected its economies. But the figures did not
reverse investor flight from risk, including eastern European
assets, spurred by concerns over Greece.
Central European economies such as the Czech Republic and
Hungary have been recovering on the back of a pick up in foreign
demand for their industrial goods.
Romania's growth, on the other hand relies on domestic
consumption - voracious before the crisis. But high unemployment
and a lending freeze have kept domestic demand weak, which is
one of the reasons Romania lags peers in returning to growth.
The Czech economy should reverse a 4.1 percent contraction
in 2009 and grow slightly this year, driven by foreign trade.
But the central bank said on Thursday the outlook for
external recovery and Czech exports was a downside risk, a
statement that many on the market said was puzzling.
Rate-setters surprisingly cut interest rates to a record low
0.75 percent.
"The new numbers are showing that the central bank's
pessimism is probably exaggerated and economic growth in the
Czech Republic this year could exceed its expectations. The
decision to cut rates was probably premature," said Vojtech
Benda, senior economist at ING Commercial Banking.
Most analysts said the bank would hold its fire after the
Greek debt crisis spurred investor' flight from risk, including
central European assets, knocking down the crown by 2 percent
over the past week.
The central bank reiterated its outlook for 1.4 percent
growth this year and cut its 2011 forecast to 1.8 percent from
2.0 percent, which some analysts said could be due to
developments in Greece which may lead to fierce fiscal
tightening across Europe.
The statistics office also said foreign trade surplus rose
to 18.3 billion crowns from 14.6 in February, with both imports
and exports rising at double digit pace and above forecast.
(Reporting by Jana Mlcochova)
