Poland leads CEE manufacturing indices drop

Polish manufacturing has slowed, despite improving prospects for euro-zone demand. The Markit Poland Manufacturing PMI index (PMI) fell to 51.0 from 53.8 in March. This was significantly short of the forecast in a Reuters poll of 53.2. Readings of the index above 50 indicate an expansion and below 50 signify a contraction.

The monthly fall in the Polish index, mostly driven by a slowdown in domestic new orders and output, was the second sharpest since November 2008. The weaker Polish PMI reading follows disappointing industrial output and retail sales data for March, which sent a signal that growth likely slowed from the annual 4.3% expansion recorded in the last quarter of 2015.

Economists say the slowdown in Polish manufacturing, contrasting with improving external demand, may be due to a slow start in contracting and spending of EU development funds from the new allocation period to 2020. The funds account for about 3% of annual national output in Poland and have been a major source of funding for public investment, predominantly in infrastructure.

Poland has been allocated about EUR82bn euros for the years 2014-2020. However, launching the programs takes several quarters, while nearly all funds from the previous allocation period had to be spent by the end of 2015.

In the Czech Republic, the manufacturing PMI eased to 53.6 in April from 54.3 in March, still robust expansion supported by improving demand from the euro-zone, central Europe’s main trade partner.

In Hungary, where the PMI index is calculated under a different methodology, the index inched up to 52.2 in April.

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