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Economies roar ahead in Q1, but party could soon be over

Central Europe’s economies roared ahead in the first quarter due partly to robust domestic demand, preliminary GDP data showed on Tuesday, but surging inflation and the impact of the Ukraine war are set to dampen growth later this year.

While an outright recession at the moment looks unlikely in the region’s economies, rising rates will weigh on credit demand in coming months, analysts and central bankers said.

“There are several risks ahead, so how the economy will perform in the coming quarters is uncertain. We expect a significant slowdown,” brokerage Equilor said.

“The uncertainty in global supply chains, the Russia-Ukraine war and a resulting potential energy crisis pose a downward risk to European economies.”

Sharp interest rate rises have so far failed to curb price pressures in Central Europe due to a fast rise in wages and soaring energy prices.

Nonetheless, Hungary’s economy HUGDPP=ECI expanded by an annual 8.2% in the first quarter, above analysts’ forecasts for 6.9% growth. .

Consumer spending in Hungary has been boosted by Prime Minister Viktor Orban’s pre-election wage hikes and handouts to families in the first quarter.

But clouds are gathering on the horizon, and growth in the region is widely expected to take a hit later this year.

Orban on Monday raised the spectre of an “era of recession” in Europe and said his government would “defend” economic achievements and regulate prices to curb inflation.

Romania’s economy ROGDPF=ECI rose 6.5% on the year in the first quarter, sharply above market expectations, while Slovakia’s economy expanded 3.1% year on year.

Ciprian Dascalu, chief economist at BCR Bank in Romania, said supply chain problems will likely be felt more acutely in the second quarter.

“We expect inflation to bite in the second half of the year, but it could be offset by investment with EU funds,” he said.

Polish GDP data are due at 0800 GMT. Data from the Czech Republic earlier this month also showed stronger-than-expected first-quarter growth.
Source: Reuters (Reporting by Krisztina Than; Editing by Jan Harvey)

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