* Polish July PMI rises to 46.5, from 43.0 in June
* Czech July PMI rises to 43.5, from 41.9
* Hungarian PMI, different methodology, up to 49.2 from 46.0
* Analysts say weak domestic economies may hamper recovery
By Michael Winfrey
PRAGUE, Aug 3 (Reuters) - Manufacturing in three of the
European Union's largest eastern economies looked closer to a
recovery in July, slowing a steep contraction and catching up
with signs of improvement in the bloc's west.
Following strides toward recovery in their main export
markets, Poland, the Czech Republic, and Hungary are showing
signs of rebounding from the crisis-driven collapse in demand
for the cars, electronics and other products they make.
Purchasing Managers' Index (PMI) data from all three showed
on Monday that their contractions in manufacturing slowed last
month -- mirroring figures showing Germany's private sector had
also nearly climbed back up to the break-even point.
The Polish PMI <PLPMI=ECI> rose to 46.5, its highest level
since June 2008, Markit Economics said.
The jump of 3.5 points over the previous month was a record
improvement, although the overall figure remained solidly below
the 50-point threshold that demarcates a contraction.
The Czech PMI crept to a 10-month high of 43.5, from 41.9 in
June and a record low 31.5 in January. It was the sixth monthly
rise in a row but was still the 13th straight month of decline.
It followed better-than-expected Czech output data for June,
which analysts said indicated catching up with forward-looking
indicators and could sway the central bank to keep interest
rates on hold at a record low 1.50 percent at an Aug. 6 meeting.
Analysts said the data were a sign the manufacturing
contraction may be near a bottom, although they also warned that
domestic troubles, including rising joblessness and public
spending cuts would continue to weigh.
"In the last two, three months, PMI was rising fairly
slowly, below the pace of improvement of euro zone PMI, and this
time, it jumped faster, making up for the slower pace," said
Piotr Bielski, senior economist at Polish bank Zachodni WBK.
"This is due to the relatively universal improvement in the
world, better sentiment in the euro zone."
The euro zone factory PMI rose on Monday to 46.3 in July
from 42.6, the second-biggest rise in series history and boosted
by growing output in Germany, France and Spain. []
Hungarian PMI, compiled under a different methodology than
the Markit data, rose to 49.2 in July from a revised 46.0 in
June, the Association of Logistics, Purchasing
and Inventory Management said.
DOMESTIC LAG
When the crisis hit full stride last year, it caused double
digit drops in industry across the region as richer Europeans
like the Germans, French and British snapped shut their wallets
and stopped buying as many cars and flat screen TVs.
That has hammered growth, causing contractions in all
countries in the EU's emerging east except for the biggest,
Poland, which has been buoyed by the relatively robust demand of
its 38 million-strong domestic market.
Now, indications the worst may be over abroad have combined
with an improvement in global risk appetite to underpin the
region's currencies, which had seen huge swings since initial
falls of as much as 30 percent in the case of Poland, last year.
"I expect the flow of improving data (sentiment and output)
to continue in the coming months. There is certainly a recovery
in exports taking place, plus probably a bit of restocking,"
said Raffaella Tenconi, chief economist at Wood & Co.
On Monday, the Polish zloty <EURPLN=> rose 0.5 percent to
4.12 to the euro, while the Czech crown was little changed.
Hungary's forint <EURHUF=> was a tad stronger at 265.55. Bond
markets were calm.
The industrial sector has been tracking developments in
Germany, the region's main export market. Its car scrappage
subsidy, designed to give drivers bonuses for trading in old
cars for newer and more efficient models, has been an important
factor in boosting industry.
Analysts expect output and export data -- vital to the
Czechs and Hungarians, where exports account for 60-70 percent
of the economy -- to continue approach the breakeven level, with
potential positive growth early next year.
But they added that deteriorating domestic pictures for many
countries, particularly due to ballooning budget deficits and
interest rates at already relatively low levels, could have a
braking effect.
"These economies will continue very much to depend on how
much Germany will recover. It is a kind of a technical recovery,
driven by a mechanistic inventory recovery," said Barclays
Capital's Christian Keller.
"But that's it. It's not yet green shoots of a self
sustained recovery. I'm not looking for upward revisions in my
growth forecasts for the region."
(Reporting by Warsaw, Prague and Budapest bureaus; Editing by
Andy Bruce)
