WRAPUP 1-Czech, Polish PMIs up, economists wary on recovery

                                
 * Polish Oct PMI at 48.8, 17-month high [ID:nL2587070]
                                
 * Czech PMI up to 49.8, vs 49.5 in Sept [ID:nL2486987]
                                
 * Hungarian PMI, different method, drops to 48.2, from 49.0
                                
 By Michael Winfrey
                                
 PRAGUE, Nov 2 (Reuters) - Czech and Polish manufacturing
edged closer to recovery in October but failed to breach the
break-even point, data showed on Monday, and economists said
momentum for a rapid industrial recovery may be waning.
                                
 Industry-heavy central Europe is clawing its way out of the
crisis with a gradual pick-up in demand from its main trading
partner, the euro zone, although analysts say the path back to
steady growth will be long and slow.
                                
 Factors including tough lending conditions, tighter budgets,
persistently sluggish consumer demand, and the end of stimulus
packages like Germany's car scrap subsidies have complicated a
picture of improving sentiment in Germany and France.
In the Czech Republic, October manufacturing crept up to
49.8, from 49.5 in September, staying below the 50 mark that
marks the border between a rise and a fall for the 16th straight
month, the HSBC Purchasing Managers' Index (PMI) showed.
                                
 In Poland, PMI <PLPMI=ECI> rose in October for the sixth
month running to 48.8 points, its highest level in 17 months. It
was bigger improvement than a .02 point rise in September.
                                
 Analysts said the data was generally positive but they
sounded a note of caution, saying an expected rebuilding of
inventories seen as crucial to the recovery may take longer than
previously expected.
                                
 "The PMIs generally still signal a recovery in output but
momentum has weakened," said Raffaella Tenconi, chief economist
at Wood & Co.
                                
 "Rebuilding of inventories should definitely help in the
near term, but waning momentum may be a signal that inventory
accumulation is not taking place very quickly, as producers are
still uncertain about the true extent of the demand rebound next
year."
                                
 In Hungary, which compiles PMI with a different methodology,
the figure slipped to 48.2 in October from 49.0 in September,
the Association of Logistics, Purchasing and Inventory
Management said.
                                
 
                                
 SHALLOW RECOVERY
                                
 Euro zone PMI data also released on Monday showed
manufacturing expanded for the first time since May of last
year, with a 26-month high in new orders and a similar rise in
output. [ID:nL2310831]
                                
 If confirmed in actual production data, the result should
translate into improved sentiment and higher output for the
Czech Republic, Hungary, and Poland, the last of which being the
only EU state to avoid contraction in the crisis.
                                
 Market reaction was subdued. The Polish zloty <EURPLN=>
inched up 0.1 percent to 4.253 to the euro by 0858 GMT, and the
Czech crown <EURCZK=> added 0.3 percent to 26.435 to the euro.
                                
 For the Czechs, production rose above the 50 point mark for
the third month in October but the pace of growth eased
slightly, signalled by a fall in the output index, the data
distributed by Markit economics, showed.
                                
 Analysts said the data would not affect a central bank rate
meeting on Thursday at which policymakers are expected to keep
the cost of borrowing on hold at an all-time low of 1.25
percent.
                                
 But they added a winding down of stimulus in the euro zone
meant positive signals may not last, particularly since the
German car scrap subsidy had ended and could hit orders in the
country's economy-dominating car industry.
                                
 "It seems that the most likely (Czech) scenario is a W-shape
recovery as signs of improvement driven by substantial fiscal
stimulus packages implemented across the EU may not prove
sustainable," said Piotr Matys, an analyst at 4CAST.
                                
 Poland, less dependent on foreign demand due to its
population of 38 million, new orders broke the 50 neutral level
for the first time since April of last year, while output
declined slightly from September but still remained in positive
territory.
                                
 Analysts said they expected the overall figure to breach
positive territory only in 2010.
                                
 "A slight growth in PMI is probably due to the German
economy gaining momentum, which is confirmed by the latest
growth in the Ifo index. But concerns over recovery remain, so
we still lack a bit to top the 50 points mark," said Grzegorz
Ogonek, economist at ING Bank Slaski in Warsaw.
                                
 "We expect PMI to breach 50 points in the first quarter of
next year, when industrial output may also be positive."
 (Additional reporting by Warsaw, Prague and Budapest bureaus;
editing by Stephen Nisbet)