Growth Quickens in East EU as Polish GDP Hits Six-Year High

(Bloomberg) -- Growth accelerated in the European Union’s biggest eastern economies, though the region’s expansion may have reached its peak.

With rapid wage increases spurring demand and the euro-area revival driving exports, Poland, Hungary and Slovakia reported Wednesday that gains in gross domestic product quickened in the fourth quarter. While there were slowdowns in Romania and Bulgaria, data Friday are set to show Czech GDP rose the most in more than two years. Ukraine, which isn’t an EU member, saw its pace weaken.

“The dynamics in the region are very positive, supported by the boom in the euro zone,” Jakub Rybacki, an economist at ING Bank Slaski in Warsaw, said by phone. “All sentiment surveys in the EU indicate high expectations for the remainder of the year. A strong pace should be especially visible in the first half.”

The EU’s former communist nations have found an economic sweet spot as demand at home and abroad, combined with low interest rates, fuel a boom from Prague to Bucharest. But with economies operating at or above potential and central banks starting to raise borrowing costs, growth may dip this year. Unemployment at record lows across the region means some companies may struggle to find workers, leaving orders unfulfilled.

Eastern European nations continued to outpace the euro region, where GDP rose 2.7 percent in the fourth quarter.

• Poland’s economy expanded 5.1 percent, the fastest in six years
• Hungarian growth quickened to 4.4 percent, driven by services and construction
• Slovakia grew 3.5 percent, just exceeding the third quarter’s pace
• Romania slowed to 6.9 percent from 8.8 percent, though remained eastern Europe’s star performer after several waves of tax cuts and increases to the minimum wage and public-sector salaries
• Non-EU member Ukraine’s economy expanded 1.8 percent, the slowest since the second quarter of 2016

The headwinds to growth are building as central banks in the Czech Republic and Romania tighten monetary policy. Slovakia is set to be an exemption thanks to a new Jaguar Land Rover Plc plant that’s scheduled to start operations this year and fuel expansion.

“We could be close to the peak of the cycle,” Zoltan Arokszallasi, an economist at Erste Group Bank AG in Vienna, said in a note. “Countries currently growing at rather high speeds -- especially Romania, but partly also the Czech Republic and Poland -- could experience a slowdown in annual growth numbers in 2018.”

--With assistance from Andra Timu Dorota Bartyzel Adrian Krajewski and Zoltan Simon

To contact the reporter on this story: Radoslav Tomek in Vienna at rtomek@bloomberg.net.

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Michael Winfrey, Andrew Langley

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