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EU's eastern economies show renewed signs of life

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(Globalpost/GlobalPost)

By Marcin Goettig and Jason Hovet

WARSAW/PRAGUE (Reuters) - The Czech Republic escaped from recession in the second quarter and the European Union's other bigger eastern economies improved, though they all still looked short of the consumer optimism needed to drive a stronger upturn.

Headline numbers on Wednesday showed the Czechs, as expected, firmly back in positive territory with growth of 0.7 percent compared to the first quarter. Poland grew 0.4 percent on the quarter and Hungary 0.1 percent, recovering from an annual contraction in the first quarter.

There was no breakdown but the pick-up was probably led by an improvement in Germany and other larger euro zone countries to which the region's cheap and flexible businesses send many of their exports.

The Czech Statistics Office said foreign trade was the biggest positive contributor, with exports up 1.4 percent year-on-year in the quarter, reflecting better-than-expected numbers elsewhere in Europe.

"Generally, we can say that exporters are now much more optimistic and see some recovery," said Zbynek Frolik, chief executive of Czech hospital bed maker Linet and a board member at the Czech Confederation of Industry.

The former communist region, pressing to catch up with its western neighbors, was one of Europe's few sources of more dynamic growth before the 2008 financial crisis and Poland has been the only EU economy to avoid recession since.

But for euro zone countries looking for a boost in the bloc's overall growth, as well as hard-pressed governments in Hungary and Poland, the signs are still mixed on whether consumers are ready to spend or borrow more.

A poll on Tuesday showed the Czech government's drive to cut spending - which has been among Europe's most aggressive and one reason for its recession - made welfare cuts the biggest concern for 61 percent of ordinary Czechs.

Frolik, Linet's chief executive, while upbeat overall, said a domestic political crisis which looked set to spark an early election this year was not helping business.

"It is also a question of restoring political stability," he said. "In an unstable situation it is hard to make any long-term strategic decisions and business stagnates."

HEADACHES

Poland looks to be turning round quickly from a fall from grace which saw it narrowly avoid recession at the start of the year, the biggest economic headache of Prime Minister Donald Tusk's record six-years in office.

The economy accelerated to a 0.8 percent clip year-on-year and grew 0.4 percent on the quarter. Analysts said exports - helped by the zloty's roughly 30 percent fall from 2008 peaks - were the driving factor.

"This year our company will post the highest sales in our 17-year history," said Zbigniew Wlodarczak, chief financial officer at Polish bus producer Solaris, which says it is now the third-largest supplier of buses in Germany.

Poland's central bank - widely criticized earlier for not cutting interest rates faster - has signaled an end to monetary easing because of a growing conviction the economy will pick up further in the second half.

"The economy is entering a path of faster growth," said the finance ministry's chief economist, Ludwik Kotecki. "This trend will continue and there will be improvement in economic activity in the third quarter."

The Czech central bank by contrast is wavering over whether to intervene against the crown, while Hungary's still looks set to cut further as Prime Minister Viktor Orban's government strives to stir the economy before elections in 2014.

A new Daimler car plant, opened last year, has added an estimated 0.7-0.8 percent to Hungarian GDP, according to some economists' estimates, but much of the rest of the economy is struggling.

"It would be good to see other segments of the industry also showing some signs of life, besides the car industry," said Erste Bank economist Zoltan Arokszallasi. "From Europe we have seen better than expected data, so in this respect it's not good that Hungarian GDP could not produce a positive surprise."

The EU's poorest country Bulgaria, meanwhile, contracted quarterly for the first time since 2009, more trouble for a new minority Socialist government under pressure from protesters accusing it of corruption.

(Additional reporting by Tsvetelia Tsolova, Gergely Szakacs, Pawel Sobczak, Adrian Krajewski; Writing by Patrick Graham)

http://www.globalpost.com/dispatch/news/thomson-reuters/130814/eus-eastern-economies-show-renewed-signs-life