Europe's emerging economies back on track

Central and eastern European countries have escaped most of the turmoil that has recently lashed emerging economies as they have been shielded by the recovery in the neighbouring eurozone, AFP reports. "A number of equity markets in Emerging Europe -- Poland's in particular -- have proved relatively resilient during the recent emerging market sell-off," Capital Economics said in its August report. "We think they may continue to outperform equities in other emerging market regions, even when prices begin to recover again." Central and eastern European countries, which are heavily dependant on the eurozone for exports, slumped along with the currency bloc when it languished in recession for the past year and half. Their share prices also fell, and given the western European dominance in the region, they didn't benefit heavily from the US monetary stimulus that flooded into many other emerging equity markets and is now causing turmoil elsewhere. "This has made (the region) less exposed to the prospect of a tapering of the Fed's asset purchases," noted Capital Economics. And now that the eurozone has exited recession, with prospects looking brighter in Germany which sucks up most the region's goods, central and eastern European economies have also perked up. Poland, a regional heavyweight with a population of 38 million people, saw its economic growth accelerate in the second quarter of the year. Its economy grew by a seasonally-adjusted 0.4 percent in the second quarter from the first quarter, up from 0.2-percent growth in the previous three-month period. "There are many factors pointing to an economic revival, including a more dynamic industrial production and acceleration of household consumption," said economist Piotr Bielski at Polish bank BZ WBK. "Companies are signalling an increase in orders, mostly coming from abroad. Consumer sentiment is also improving and is at its highest since 2011." -- 'Proximity to western markets ... give central Europe a leg up' -- The Czech Republic, Central Europe's third biggest economy after Poland and Austria, for its part exited in the second quarter its longest recession ever, lasting 18 months. Its gross domestic product (GDP) grew by 0.7 percent in the second quarter from the first quarter -- a rate equal to that of European powerhouse Germany, its main economic partner. The Czech economy is highly dependent on the auto industry, which represents more than 20 percent of its industrial production, and on exports to western Europe. "The development of the Czech economy will continue to depend largely on recovery in the eurozone," said Tomas Vlk, analyst at the Prague-based investment bank Patria Finance. Hungary exited recession in the first quarter with growth of 0.6 percent, which then slowed however to 0.1-percent growth in the second quarter due to lower household consumption. Yet on an annual basis GDP grew for the first time since 2011. Industrial production rose by 0.9 percent year-on-year in the second quarter, after falling by 3.1 percent in the first quarter. "This was probably related to the strengthening of the German economy, Hungary's largest trading partner. But things appear to have improved at home too," according to Capital Economics. Eurozone member Slovakia posted 0.3-percent growth in the second quarter from the first quarter, up from 0.2-percent growth in the previous three-month period. The unemployment rate, while still high, has been falling since the beginning of the year to under 14 percent this month. "Given the extent of the openness of the Slovak economy, it is external demand that makes or breaks the engine of Slovak growth," said Vladimir Vano, Sberbank analyst in Bratislava. "Proximity to western markets and transport and logistics ease give central Europe a leg up over Asian countries, as does an often better quality of products offered by the region," Bielski said. Romania, one of the EU's poorest countries, should see its economic growth pick up from 0.7 percent in 2012 to 2.0 percent this year, according to the International Monetary Fund. Eurozone member Estonia saw its economy grow by 0.1 percent in the second quarter from the first quarter and expects 1.5 percent growth in 2013. Lithuanian growth slowed to 0.6 percent in the second quarter, down from 1.3 percent in the previous three-month period. The finance ministry of the Baltic state, which hopes to join the eurozone in 2015, expects three percent growth next year. Latvia, which will adopt the euro in January, also experienced a slowdown to 0.5 percent in the second quarter, from 1.4 percent in the first quarter. "We see that services, construction and retail trade grow faster than the export-oriented processing industry," said Andris Strazds, chief economist at Nordea bank in Latvia. "However, I would expect exports to get going again in 2014, given that the external environment is improving." Bielski added: "The greatest risk for the emerging economies of central and eastern Europe is uncertainty over the sustainability of the global economic recovery." "A global relapse would stop the momentum of these economies." Turkey, despite its strong trade ties with the EU, has broken away from its Eastern European neighbours and found itself caught up in emerging market turmoil. The country is being punished for a wide current account deficit that requires financing from the global markets.