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Tuesday, May 15, 2012
Reuters
Recession hits EU states in the east, outlook grim

The Czech Republic's economy shrank for the third consecutive quarter and Romania fell back into recession in the first three months of the year, as the euro crisis and government austerity hammered domestic demand and squeezed the crucial export sector.

Flash gross domestic product estimates for the European Union's emerging eastern states also showed Hungary had contracted for the first time since the height of the global economic crisis in 2009.

The data in all three countries was worse than forecast by economists in Reuters polls, prompting many to say it could intensify debates in those countries' central banks over whether to cut interest rates despite a need to keep investors interested with high risk premiums.

They also warned that the figures had come before the early indications of a decline in manufacturing across the region at the start of the second quarter.

"It's pretty grim. The worst part is that it shows output in large swathes of the region was contracting even before the most recent escalation of the euro crisis," said Neil Shearing, an emerging markets economist at London-based Capital Economics.

"So I expect the second quarter is going to be worse."

Romania, the European Union's second poorest economy, slipped back into recession, shrinking 0.1 per cent versus the previous quarter due to a devastating cold snap and snow storms that shut down production in January and waning demand for its exports in the euro zone.

In the Czech Republic, data showed a much worse-than-expected drop of 1 per cent versus the previous three months. It was the third straight contraction in what the central bank has forecast could be a five-quarter recession.

Hungary's economy also contracted for the first time since the last quarter of 2009. It shrank 1.3 per cent versus the previous quarter, following stagnation at the end of 2011.

The only country to buck the trend so far was Slovakia. The euro zone member state grew by a faster-than-expected 0.8 per cent versus the previous quarter following the opening of a new production line at the country's Volkswagen plant that is gradually boosting production.

 
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