Central Europe's recovery strengthens in first quarter
Adds Polish data, comment, Slovak quote, Romania central bank governor; paragraphs 1-5, 9-11, 16
May 15 (Reuters) -Poland's economy accelerated in the first quarter while Slovakia's expanded at the fastest pace in over two years, data showed on Wednesday, as increased consumer spending looks set to drive central Europe's recovery this year.
Preliminary data on Wednesday showed Poland's gross domestic product rose 0.4% quarter-on-quarter and by 1.9% year-on-year, the latter figure just above a Reuters forecast of 1.8% and the quickest gain since the end of 2022.
Analysts attributed the rise to domestic consumption, with factory activity and investments still muted.
"The driving force behind the recovery is consumption. In the first quarter there was a deterioration in investments," ING said as left a forecast for 3.0% growth overall in 2024.
Poland, central Europe's biggest economy, is looking to pace the region's recovery this year now that inflation - after hitting double-digit rates in recent years - has slowed, boosting households' spending power.
Wednesday's data follows preliminary readings already in the Czech Republic - where quarterly growth of 0.5% was the fastest in two years - and Hungary - which posted 0.8% quarter-on-quarter growth.
In Slovakia, GDP increased by 0.7% on a quarterly basis, according to a flash estimate from the statistics office. On a year-on-year basis, the economy increased by 2.7%, beating a forecast of 2.0% in a Reuters poll.
Household demand, too, was the driver, analysts said.
"The Slovak economy has started the new year with relatively strong momentum," Erste Group Bank said.
"After a year-long decline in household consumption, there seems to be a revival in this most important component of economic performance."
Government spending also helped, and that should continue with European Union funds being drawn this year, analysts added.
In Romania, GDP rose 0.5% quarter-on-quarter but only 0.1% year-on-year, well below a Reuters poll forecast of 2.7% growth on an annual basis.
Erste said rising wages and lower interest rates on the way would drive growth going ahead, as its analysts kept a forecast for 2.6% growth this year.
"The private consumption momentum started in 4Q23, and it is expected to continue throughout 2024 as strong real wage growth, looser monetary policy conditions and slightly better external demand prospects should nurture higher private spending," Erste said.
Rate setters around central Europe mostly shifted to looser monetary policy starting last year, although Poland has taken a long break from rate cuts.
Romania is yet to start and its central bank defied market expectations on Monday by keeping its benchmark interest rate unchanged. Markets still see rate cuts ahead, however, and Governor Mugur Isarescu said on Wednesday the bank was looking for the optimal moment.
Reporting by Jason Hovet in Prague, Luiza Ilie in Bucharest, and Pawel Florkiewicz and Alan Charlish in Warsaw; Editing by Hugh Lawson and Christina Fincher
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