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Consumer Boom, Strong Demand Fuel Czech, Polish Q1 Growth

The Czech economy expanded faster than expected in the first quarter, while Polish growth was confirmed at 8.5% year-on-year, with strong household consumption bolstering central Europe's main economies ahead of an expected slowdown later this year.

The region's economies have started 2022 in high gear, propelled largely by home-grown demand after COVID-induced lockdowns ended, while companies are still working through global supply disruptions and soaring energy and material costs.

The Czech economy posted 0.9% quarter-on-quarter growth in the first three months of 2022, higher than a flash estimate of 0.7%. In year-on-year terms, growth reached 4.8%, above the preliminary estimate of 4.6% reported last month.

"The detailed data revealed that despite higher inflation the Czech economy was able to speed up its growth to 0.9% q/q in 1Q22 compared to its performance in 4Q21," economists at Erste Group said in a note.

"We are still puzzled by the high stock of inventories which can pose some downward risk to the growth in the next couple of quarters."

Poland, the region's biggest economy, posted first-quarter growth of 8.5%, unchanged from a flash estimate, with household consumption growing by 6.6% from the same period a year ago and domestic demand surging by 13.2% based on final data.

Hungary will publish a detailed breakdown on Wednesday after preliminary data showed its economy expanded by 8.2% in the first three months, above expectations.

Price Pressures

Strong domestic demand in central European economies has contributed to a surge in inflation into double-digit territory, with Poland reporting a 13.9% year-on-year increase in May inflation, in line with forecasts.

The region's central banks have raised interest rates aggressively since last June to fend off mounting price pressures in the aftermath of the coronavirus pandemic, further exacerbated by the war in Ukraine and strong wage rises.

Czech central bank Vice-Governor Marek Mora was quoted as saying on Tuesday that another Czech interest rate hike in June was more likely in order to reach stable and low inflation as soon as possible. Read full story

Hungary's central bank is also expected to raise rates further on Tuesday. However, its plan to slow the pace of tightening even as inflation accelerates has pressured the forint, central Europe's worst-performing currency this year.

The Czech and Hungarian central banks, which last June became the first in the European Union to launch big rate hikes, surprised investors earlier this month by looking ready to step on the brakes, wary of stifling economic growth.

Slowdown 'Inevitable'

With firms continuing to face constraints and consumers becoming more pessimistic amid price growth at its highest in decades, fast-rising borrowing costs and utility bills, and new uncertainties due to war in Ukraine, a slowdown looks inevitable.

In the data breakdown released on Tuesday, Czech household consumption was a strong year-on-year gainer but eased a touch in quarter-on-quarter terms.

Signs are already pointing to the slowdown ahead, with Czech consumer confidence hitting a 10-year low. Elsewhere, Hungarian consumer confidence has also eased.

News by Reuters, edited by ESM – your source for the latest retail news. Click subscribe to sign up to ESM: European Supermarket Magazine.

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