Central Europe’s fastest expansion for nine years and strong growth in German spurred the EU’s vigorous economic recovery in the third quarter. The eurozone and the EU both grew by 0.6 per cent quarter on quarter, and 2.5 per cent year on year. Germany expanded 2.8 per cent year on year.
Core Europe, and especially Germany, is growing strongly, and dragging others with it, especially countries in CEE, which are closely linked into its supply chain; wage growth is driving up private consumption.
Central Europe’s fastest expansion for nine years and strong growth in German spurred the EU’s vigorous economic recovery in the third quarter. The eurozone and the EU both grew by 0.6 per cent quarter on quarter, and 2.5 per cent year on year. Germany — the EU’s economic powerhouse — expanded 2.8 per cent year on year.
However other economies were left in the shade by Romania, which grew 8.6 per cent year on year after increased government spending on pensions and public sector salaries stoked a boom in private consumption. The strong reading from Romania — which was almost 3 percentage points above expectations — prompted warnings from economists of the need for fiscal and monetary tightening, amid fears of inflation and a lack of capacity in the labour market. “It’s obvious this growth rate is not sustainable — Romania is not China. We are seeing excess demand and it’s a very clear sign of overheating,” said Ionut Dumitru, chairman of Romania’s fiscal council.
There were echoes of Romania’s growth across central Europe, which grew at 5.3 per cent year on year, its fastest rate since 2008, according to economists at Capital Ecoomics. Latvia grew at an annual rate 6.2 per cent while Poland and the Czech Republic both grew 5 per cent.
Richard Grieveson, an economist at the Vienna Institute for International Economic Studies, said: “Core Europe, and especially Germany, is growing strongly, and dragging others with it, especially countries in CEE, which are closely linked into its supply chain….Second, very strong employment and wage growth is driving up private consumption. And third, higher inflows of EU funds are particularly supportive of investment growth, and this is very important for central European economies.”
Piotr Matys, an economist at Rabobank, said that, with the exception of Romania, “there are not really any warning signs that the robust economic growth will lead to overheating”.
Growth in central Europe “is quite balanced”, he added.
Nontheless some analysts said the strong growth figures would increase the pressure on central banks to raise interest rates. The Czech central bank has already raised rates twice this year, and Liam Carson, an economist at Capital Economics, said he now expected other rate rises across the region. “A 25 basis point hike to Romania’s policy interest rate looks nailed on at January’s monetary policy committee meeting and we’re becoming increasingly confident that Poland’s [central bank] will start to tighten policy in the first half of next year,” Mr Carson said.
More on Financial Times: Central Europe grows at fastest in nine years