Central Europe factory jump shows recovery gaining pace

By Jason Hovet PRAGUE (Reuters) - Factories across central Europe reported growth in output and new business in August, a recovery in the region gaining strength in the wake of an improving German economy. Purchasing managers indices beat forecasts in Poland and the Czech Republic and also rose in Hungary, survey data showed on Monday. In Poland, the main HSBC manufacturing PMI index rose to 52.6 from 51.1 a month ago, the fastest expansion in over two years. The Czech index jumped to 53.9, above a forecast of 52.7. Hungary, which uses a different index released by the Association of Logistics, Purchasing and Inventory Management, reported a jump to 51.7 from 49.0. "The raft of manufacturing PMIs across central Europe for August provide further evidence that the region's recovery is gathering pace, helped by the improvement in the German economy," Capital Economics emerging markets economist William Jackson said. "All in all, these surveys support our view that central Europe is set for a recovery over the coming quarters." Central Europe is closely tied by trade links to Germany, by far Europe's largest economy, whose strong performance has a knock-on effect on the region. Germany reported growth of 0.7 percent in the second quarter and recent data has provided further evidence it is bouncing back from a slowdown last year, which should bode well for its eastern neighbours. Sindat, a Czech holding group including companies in textiles, nanotechnology and chemicals, has seen a pickup in exports of technical textiles for the car sector to Germany, its general director, Karel Havlicek, said. "The automotive industry is running well and Germany is now also running very well (for business)," he said. WORST PAST The Czech economy is just exiting a contraction that started in the middle of 2011 while Poland narrowly missed falling into recession earlier this year. Hungary, too, is recovering from recession after the trade slowdown with the crisis-hit euro zone hit growth in the EU's eastern wing. "It confirms what we already know - that we have the worst behind us and that we are in a recovery," Urszula Krynska, economist at Millennium Bank said of the Polish figures. "Economic growth will be accelerating in upcoming quarters, we expect full-2013 growth at 1.3 percent." The figures helped the zloty firm 0.1 percent against the euro and bucked up other currencies in the region. Polish data on Friday confirmed that growth in the European Union's largest eastern economy picked up to an annual 0.8 percent from 0.5 percent a quarter earlier, recovering gradually from the deepest slump in years. The Czech index added to the case for the central bank to hold off intervening in foreign exchange markets to weaken the crown currency and aid growth. "It is strongly positive, not only the headline figure but also the composition is very good," said David Marek, chief economist at Patria Finance. "That (means) especially a rise of orders, export orders, employment... All of them provide a big chunk of optimism." (Reporting by Warsaw, Budapest, Prague bureaus, writing by Jan Lopatka; editing by Patrick Graham)