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CEE manufacturing recovery marches on but signs of slowing

PRAGUE (Reuters) - Central European manufacturing remained on a recovery path in August although PMI surveys released on Tuesday showed a rebound from the heavy economic hit of the coronavirus pandemic was likely to be slower amid fears of a second wave.

FILE PHOTO: A view of the Palace of Culture and Science is pictured from the newly-opened Warsaw Spire skyscraper in Warsaw, Poland May 12, 2016. REUTERS/Kacper Pempel

The region was hit hard by the initial coronavirus outbreak, as businesses and daily life came to a virtual halt and foreign trade sank.

Updated gross domestic product data this week showed a year-on-year contraction of 8.2%-13.6% in countries across the region, with Hungary the worst hit and Poland and the Czech Republic faring better than expected.

Sentiment indicators are giving some hope the worst is over even if a slower recovery is seen.

In Poland, manufacturing activity improved more slowly in August as demand stagnated, with IHS Markit’s Purchasing Managers’ Index (PMI) falling to 50.6 last month from 52.8 in July.

The Czech Markit PMI rose to 49.1 in August from 47.0 in July, its best reading since December 2018 but still below the 50 mark that divides contraction from expansion.

In Hungary, a similar PMI survey by the Association of Logistics, Purchasing and Inventory Management rose to 52.8.

Katarzyna Rzentarzewska, an economist at Erste Group Bank, said data was pointing to a recovery shaped more like the Nike brand’s “Swoosh” than a “V”, assuming no broad lockdowns again.

“Rising infections ... may affect the pace or dynamics of this recovery so we may see some uncertainty or cautiousness but at this point it is not translating into worsening market conditions,” she said.

Central Europe, like western Europe, has seen an uptick in COVID-19 cases since the summer, leading Hungary to shut its borders to most foreign tourists in September. Governments are seeking to avoid nationwide lockdowns.

“(Manufacturing) optimism for the next 12 months persists but has faded in the face of the uncertain epidemic situation,” Poland’s Alior Bank said.

Capital Economics said the PMIs indicated industrial out growth of around 3% in Poland in the third quarter and around 5% in Hungary.

“Industrial sectors are likely to recover further over the coming months, although the pace of the rebound is likely to slow,” Liam Peach, emerging Europe economist at Capital Economics, said in a note.

Reporting by Jason Hovet in Prague, Alan Charlish and Pawel Florkiewicz in Warsaw, and Gergely Szakacs and Krisztina Than in Budapest; Editing by Catherine Evans

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