* Hungary grows 1.7 pct y/y in Q3, consumers join recovery
* Czech Q3 GDP up 1 pct, exports still main factor
* Bulgaria Q3 GDP beats flash estimate, Estonia up 5 pct y/y
By Michael Winfrey
PRAGUE, Dec 9 (Reuters) - State spending helped Hungarian
consumers climb aboard a nascent recovery in the third quarter
and Bulgaria grew more than previously thought, as euro zone
demand continued to lead eastern Europe out of crisis.
A main supplier to the euro zone's engine Germany, the Czech
Republic also showed solid growth, while Estonia, set to join
the currency area on Jan. 1, powered ahead with a 5 percent
expansion over a year earlier, data showed on Thursday.
With households still mostly on the defensive across the
EU's emerging eastern markets, policymakers have embarked on
divergent paths to try to keep fuelling growth while also
tackling budget deficits that swelled at the height of the
economic crisis.
Hungary's government in particular has ignored market
warnings of long-term risks and passed measures to tax big firms
and seize private pension assets to avoid cost cuts in a
pro-growth strategy it says will lead to budget sustainability.
[]
Its export-heavy economy grew by 0.8 percent from July to
September versus the previous three months and 1.7 percent from
a year earlier, an improvement over a preliminary estimate of
1.6 percent released last month. []
Economists also expressed surprise that consumer demand --
long depressed by belt-tightening endorsed in a 2008 bailout led
by the EU and International Monetary Fund -- had turned
positive, growing 0.8 percent on the year, from a 5 percent
contraction the previous quarter.
"The breakdown was very encouraging, household spending
actually turned positive in year-on-year terms," said Raffaella
Tenconi, an economist at Bank of America Merrill Lynch.
"Spending growth of the government is going briskly, which
again tends to support the view that fiscal policy is turning
stimulative."
Investors have criticised Prime Minister Viktor Orban's
right-of-centre government for rejecting a new IMF/EU financial
safety net and say Hungary's risk profile is being undermined by
policies including a plan to take $14 billion in assets held in
private pension funds and use them for budget spending.
The economy will also have to accelerate again in the first
half of next year, when budget cuts start to bite in the euro
zone, if it is to meet the government's 3 percent growth target.
But analysts also say that the one-off revenue moves will
probably make Budapest one of the few EU states to meet the
bloc's budget gap ceiling of 3 percent of GDP in 2011.
By comparison, its regional peers Poland, Romania and the
Czech Republic are expected to take at least until 2013 or later
to bring their deficits to below that level.
Central European currencies were mostly higher after the
data, helped by gains in the euro against the dollar. But they
mostly shrugged off the final GDP readings because they were
largely in line with initial estimates. []
EXPORTS STILL LEADING
Elsewhere in the region, domestic demand remained generally
weak, and economists say 2011 growth will likely continue to be
led by exports as banks keep a tight grip on lending and
consumers hold back due to high unemployment and weak wage
growth.
The export heavy Czech economy expanded by 1.0 percent from
the previous three-months, just below a preliminary estimate of
1.1 percent. []
Annual growth was 2.8 percent, less than neighbours Poland,
the region's biggest economy with 38 million consumers, and
Slovakia, which posted 4.2 and 3.8 percent growth respectively.
An 18.5 jump in exports also countered a negative effect of
falling household demand in Bulgaria, which grew for the first
time in two years, although economists have warned that it,
along with Balkan neighbour Romania, will lag the rest of the
region for several years. []
To the north, Estonia showed a 5 percent expansion on the
year, higher than a previously reported 4.7. []
The generally better-than-expected data has led many
analysts to raise growth forecasts for this year, although they
also caution an expected slowdown in Western Europe will
eventually weigh in 2011.
If that materialises, it could potentially pose problems for
countries like Hungary and Poland who have avoided public
spending cuts and are depending on strong growth to raise budget
revenue and cut deficits.
Economists say Budapest, in particular, will face headwinds
from a host of factors, not least of which is a surprise shift
towards monetary tightening from the central bank, which says
Orban's policy moves have raised inflation risks and undermined
Hungary's credit worthiness.
The bank raised official rates by a quarter point to 5.5
percent last week, and on Thursday, rate setter Tamas Banfi said
persistant doubts over risks abroad could bring another hike.
"We cannot foresee international impacts and we cannot rule
out conditions forcing an increase some time in the near
future," Banfi told the daily Magyar Nemzet. []
(Editing by Patrick Graham)
