* Polish PMI inches up to 42.55 in May, from 42.1 in April
* Czech PMI up to 7-month high of 40.5, from 38.6
* Analysts say economic downturn stabilising, Q2 to be weak
By Michael Winfrey
PRAGUE, June 1 (Reuters) - The fall in manufacturing in the
European Union's two largest ex-communist economies slowed in
May, and analysts said the worst blow to the sector appeared to
have passed, although the region was still in a deep downturn.
Despite a stabilisation of credit markets and "green shoots"
that some western policymakers say indicate a bottoming out, the
EU's eastern wing is still beset by a sharp industrial
contraction due to a collapse in euro zone demand.
But due to improving sentiment in western Europe,
expectations for industry have brightened, particularly in
Poland, where exports account for only about 45 percent of the
economy, versus 70 percent for the Czechs.
The Purchasing Managers Index (PMI) for Polish manufacturing
edged up to 42.55, from 42.1 in April, signalling its mildest
pace of decline since October, Markit said.
Czech PMI crept higher to a seven-month peak of 40.5, from
38.6 in April. Both figures were still well under the critical
50 level dividing expansion from contraction.
"Although the manufacturing sector continued to experience a
sharp contraction mid-way through Q2, this release provides
further evidence that the worst of the industrial downturn has
passed," said Trevor Balchin, an economist at Markit.
"PMI data also support the view that Poland is weathering
the global economic crisis better than export-reliant neighbours
such as the Czech Republic."
However, following worse-than-expected growth and industry
data released last month, analysts said the very slight upticks
did not give them much hope of a quick, strong recovery.
Poland was one of the few countries to actually show growth
in the first quarter, but it came in below expectations, with
the economy growing 0.8 percent, versus a consensus forecast of
1.0 percent.
On Friday, data showed Czech industrial output fell by 23
percent in April, returning to a near record pace of decline
after a brief respite in March. That followed a
worse-than-expected fall in gross domestic product of 3.4
percent in the first quarter.
Economists have also warned that rising job cuts at firms, a
contraction of investment, rising bankruptcies, and very weak
credit growth were also taking a toll on the economy, preventing
an early rebound from the crisis.
For example, Czech media reported on Monday that truck maker
Tatra will cut 450 of its 2,750 workers on Monday after previous
cuts, and two companies were declared bankrupt.
"What we're seeing is the expectations are improving
significantly but the actual current conditions are not. In fact
in some countries they are deteriorating," said Raffaella
Tenconi, chief economist at Wood & Co.
"So I would expect Q2 GDP to remain extremely weak. The bulk
of the recovery starts in late Q3." She said she thought the
Czech central bank would cut interest rates by a quarter of a
percent this month and perhaps cut again several months later.
(Additional reporting by Gabriela Baczynska; Editing by Toby
Chopra)
