By Michael Winfrey
PRAGUE, Sept 1 (Reuters) - Czech and Polish manufacturing
business shrank in August at the sharpest pace in more than five
years due to a steep drop in western demand and strong
currencies, which analysts said could prompt more dovish
monetary policy.
The Czech Purchasing Managers' Index (PMI) dropped to 47.3
in August, the lowest level since the series began in July 2001,
falling further below the 50 divide between growth and
contraction from 49.9 in July, data from Markit Economics and
ABN Amro showed on Monday.
In Poland, the largest of the ex-communist economies to join
the European Union since 2004, the contraction was sharper, to
an index level of 45.8 in August from 46.4 in July, its sixth
consecutive monthly decline and the worst figure since December
2002.
The drop came alongside PMI data from the euro zone --
emerging Europe's main export market -- that was a touch better
than expected but still showed a significant contraction at
47.6.
"There have been signs of easing growth momentum across most
economies in eastern Europe, including Poland, notwithstanding
its healthy domestic demand momentum," said Roderick Ngotho, a
foreign exchange strategist at UBS.
Last week the governor of Poland's central bank said
policymakers "clearly" remained in a monetary tightening cycle
after leaving rates on hold at 6.0 percent.
That followed Polish data showing a slower-than-expected
deceleration in second quarter gross domestic product growth to
5.8 percent, partially a result of surging domestic demand.
The Czech economy, which has seen a sharp slowdown in
consumer spending and is more dependent on export demand from
Germany, slowed to grow 4.5 percent in the second quarter, from
5.1 percent in the first three months of the year.
That slowdown, exacerbated by record highs on the crown
<EURCZK=> that have made Czech exports less attractive to west
Europeans, helped prompt the Czech central bank to surprise
markets with an interest rate cut to 3.5 percent last month.
Analysts said the PMI figures indicated the Poles could now
likely keep interest rates on hold until the end of the year,
while the Czechs could potentially cut again.
That feeling could be reinforced by weaker inflationary
pressure on firms' costs. They hit a 15-month low for Czech
manufacturers and an eight-month low of 56.0 in Poland.
"This just reinforces our view that there are downside risks
even to the (Czech central bank's) new growth projections and
further monetary loosening is likely in the near term," said
Raffaella Tenconi, an economist at Dresdner Kleinwort.
Debbie Orgill, from ABN Amro, said: "For Poland the interest
rate tightening cycle is coming close to an end, but rate cuts
really are only a story for spring 2009 onwards."
The Czechs were also hit by the first decline in new orders
in almost six years to a record index low of 45.0. For the
Poles, the new export orders gauge rose to 44.0, from 42.6 in
July, still representing a sharp contraction, and the output
index fell to a 68-month low of 43.9.
(Editing by Ruth Pitchford)
