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The European Union’s eastern economies withstood the brunt of global headwinds that helped send the U.K. -- and probably Germany -- into contraction as a jobs boom and stimulus keep growth alive.
While annual growth dipped a little across the region last quarter, Hungary, Poland and Romania led expansion within the EU, Bloomberg surveys of analysts showed. Even the slowest of the six eastern economies reporting on Wednesday probably grew at least 2.6%.
With the global trade war denting output around the world and Brexit dealing a further blow to the EU, the bloc’s eastern economies are still firing on all cylinders in their race to catch up with their more affluent western peers. Households are taking on new mortgages and buying more cars as rising salaries boost disposable income.
“We’ve seen double-digit growth in sales for the last couple of years, reflecting an improving economy and a recovery in purchasing power,” Gabor Gablini, the President of the Hungarian Association of Automobile Dealers, said in an interview. “The biggest risk to further growth comes from abroad.”
The consumption-led expansion has been a shift away from years of export-driven growth. An acute labor shortage across the region has fueled explosive wage growth in many countries. In Hungary, loose monetary policy has combined with state handouts to put more cash in the hands of families.
Hungary’s government is targeting growth that’s 2 percentage points faster than the EU average. To achieve that, Prime Minister Viktor Orban has pledged two rounds of stimulus measures next year. The central bank, run by a close Orban ally, has eased policy more than its regional peers and announced programs to boost credit to households and companies.
It’s a similar picture in Poland, where the government has boosted spending before October general elections.
For a region that’s deeply integrated into international supply chains, the main question is whether the domestic support will be enough to counterbalance the slowing global economy. Some countries with less stimulative policies are already feeling the pinch.
Purchasing managers’ surveys have displayed growing pessimism and industrial-production figures have fallen in recent months. Despite record-low unemployment and strong wage growth, the pace of annual expansion in Slovakia was probably the slowest in more than two years. In the Czech Republic, worsening growth prospects prompted the central bank to keep interest rates steady after leading Europe in raising them.
“Although the region almost fully disconnected from Germany in the first half, the risks have been building,” JPMorgan Chase & Co. economist Jose Cerveira said in a note. “The synchronized nosedive in industrial-production readings raised the first hard data red flag. We have revised our growth forecasts lower for the coming quarters.”
--With assistance from Andra Timu and Dorota Bartyzel.
To contact the reporters on this story: Radoslav Tomek in Bratislava at firstname.lastname@example.org;Marton Eder in Budapest at email@example.com
To contact the editors responsible for this story: Andrea Dudik at firstname.lastname@example.org, Michael Winfrey, Andrew Langley
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