CEE ECONOMY Hungary's economy falls back in first quarter, Czech growth maintained
PRAGUE/BUDAPEST, April 30 (Reuters) - Hungary's economy shrank at the start of 2025 for the fourth time in the past six quarters, while household consumption continued to buoy the Czech economy.
Central Europe's economies are counting on rising household spending to drive recovery this year, compensating for firms that are facing rising risks and uncertainty as U.S. tariffs upend global trade and pinch growth forecasts in the region.
While central Europe has little direct trade with the United States, countries like Hungary and the Czech Republic rely heavily on exports to bigger European Union partners like Germany that will be hit by tariffs.
Preliminary data on Wednesday showed Hungarian gross domestic product fell 0.2% quarter-on-quarter after a 0.6% rise in the fourth quarter, according to the statistics office.
On a year-on-year basis, the economy stagnated in the first quarter, the office said, without giving a detailed breakdown.
"The data represent yet another nasty surprise," Erste Group Bank economist Orsolya Nyeste said.
"Low business confidence has probably led to a further decline in investments, while the weakness of external markets implies unfavourable export data."
The data do not include the possible negative effects of the trade war, which represent further downside risks to GDP in the coming quarters, Nyeste said.
In the Czech Republic, policymakers expect slower growth ahead also due to trade war risks.
In the first three months of 2025, the economy grew by 0.5% quarter-on-quarter, the Czech statistics office said, as household consumption was the main driver. Gross capital formation and external demand had a slightly positive influence, the office said.
Growth was 2.0% year-on-year, although trade had a negative contribution.
The Czech Finance Ministry cut its 2025 growth forecast to 2.0% from 2.3% this month due to the impact of U.S. trade policy raising uncertainty and hurting investment activity.
Hungary's central bank has said U.S. tariffs could shave 0.5 to 0.6 percentage points off growth. In March, it forecast 2025 growth at 1.9%-2.9%.
Moody's Analytics said this week that central Europe - whose countries' exports as a share of output are above the EU average - needed to find new export markets and new growth drivers amid the global economy shake-up.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
5 hours ago
- Reuters
Trump says Pakistani representatives coming to US next week for trade talks
WASHINGTON, May 30 (Reuters) - U.S. President Donald Trump said on Friday representatives from Pakistan are coming to the United States next week as the South Asian country seeks to make a deal on tariffs. Pakistan faces a potential 29% tariff on its exports to the United States due to a $3 billion trade surplus with the world's biggest economy, under tariffs announced by Washington last month on countries around the world. Trump said he would have no interest in making a deal with the South Asian country or its neighbor, India, if they were to engage in war with each other. The two nuclear-armed rivals used fighter jets, missiles, drones and artillery in four days of clashes this month, their worst fighting in decades. "As you know, we're very close making a deal with India," Trump told reporters at Joint Base Andrews after departing Air Force One. Indian Trade Minister Piyush Goyal visited Washington recently to advance trade talks, with both sides aiming to sign an interim agreement by early July. India faces 26% tariffs on shipments to the U.S. Reuters reported last week that India is likely to allow U.S. firms to bid for contracts worth over $50 billion, mainly from federal entities, as it negotiates a trade deal with Washington.
Reuters
5 hours ago
- Reuters
China's manufacturing activity falls in May, PMI shows
BEIJING, May 31 (Reuters) - China's manufacturing activity shrank for a second month in May, an official survey showed on Saturday, raising expectations for more stimulus to support the economy amid a protracted trade war with the United States. The official purchasing managers' index (PMI) rose to 49.5 in May versus 49.0 in April, below the 50-mark separating growth from contraction, and was in line with a median forecast of 49.5 in a Reuters poll.
Reuters
9 hours ago
- Reuters
Why the dollar's wobble could be self-perpetuating
LONDON, May 29 (Reuters Breakingviews) - Foreign currency hedging is not a topic that usually dominates the water-cooler chats on trading floors. Right now, however, it's front of mind for many of the biggest players in financial markets. The U.S. dollar's unusual moves in April, when it fell in tandem with stocks, has cast doubt over a long-lasting relationship between the greenback and risky assets. Over time, it might nudge non-U.S. investors to hedge more or reduce their exposure to American stocks and bonds. Both could create a self-reinforcing downward cycle for the dollar. Investing abroad is a tricky business for money managers with liabilities denominated in the currency of their home country. Think German or Japanese insurers, whose policies are written in euros and yen, or Canadian and Australian pension funds, whose beneficiaries expect to finance their retirement in Canadian and Aussie dollars. Buying shares and debt issued by companies in other countries introduces the danger that foreign exchange swings will reduce the value of the investments in local-currency terms, even if the underlying returns are good. That is why investors tend to use foreign exchange forwards and other derivatives to hedge currency risks, effectively swapping far-flung exposures into domestic ones. The beauty of holding U.S. assets, though, is that the dollar tends to strengthen when the market panics. In money-manager speak, it's an anti-cyclical currency, which means investment bosses can get away with minimal protection against foreign exchange risk on giant portfolios of American stocks and bonds. It also helps that the dollar has generally risen in recent years, providing foreign investors with an extra boost to their overall returns. One study, opens new tab, published by the National Bureau of Economic Research, found that foreign insurers, pension funds and mutual funds hedged 44%, 35% and 21% of their respective dollar portfolios in 2020, with much higher ratios for bonds compared to stocks. Apply that range to the $30 trillion of total American assets held by non-U.S. investors as of last year, and the implication is that anywhere between $24 trillion and $17 trillion could be unhedged. Take the Canada Pension Plan Investment Board for example. U.S. dollar exposures account, opens new tab for more than half of its net investments of $520 billion, but are minimally hedged, according to a person familiar with the portfolio. Several people involved in the running of different Canadian retirement funds told Breakingviews that the safe-haven nature of the greenback was a key reason for relatively low hedge ratios. Japan's giant Government Pension Investment Fund, meanwhile, had invested almost a third of its $1.7 trillion portfolio in American assets as of March 2024 with slightly more than half in stocks and the rest in bonds. The U.S. exposure was almost entirely unhedged, a person familiar with the matter told Breakingviews. According to traders and analysts these large so-called 'open' positions in U.S. assets have caught the attention of currency market players in recent months, for two reasons. First, the dollar didn't live up to its safe-haven billing after U.S. President Donald Trump's tariff plan tanked stocks in early April. The greenback fell roughly 5% against a basket of other rich-world currencies and failed to rebound alongside the S&P 500 Index when trade tensions cooled. The upshot for foreign investors is that volatile U.S. policymaking may cause the dollar to gyrate in the same way as equity markets. If that becomes the norm, foreign investors' risk models would over time call for much more dollar hedging. The second consideration is that Trump and his advisers seem set on weakening the currency in a bid to boost exports. That is cementing a sense in foreign currency markets that the dollar is unlikely to see another 2022-style surge in strength, meaning overseas investors may be more likely to get a drag from the greenback rather than a lift. One open question is whether it is even possible for large pension funds and insurers to meaningfully increase the proportion of their dollar portfolios that are hedged. In places where local institutions' holdings of U.S. assets are large relative to the local market, such as Taiwan or Nordic countries like Sweden, a big increase in demand for FX derivatives could meaningfully affect the value of the domestic currency. The Taiwan dollar's recent surge against the greenback looks like a case in point. Even in deeper markets like the Japanese yen, euro or Canadian dollar, hedging comes at a price. The typical method is to use forward contracts, which involves locking in an exchange rate by agreeing to buy one currency and sell another at a future date. The cost is largely determined by the difference in government bond yields between the two markets. Relatively high U.S. interest rates therefore make it expensive for local investors to hedge their dollar exposure. One-year contracts currently imply a roughly 2% annual cost for Canadian and European investors and 4% for those in Japan, according to Breakingviews calculations. The implication is that institutions which hedge an extra quarter of their U.S. portfolio could reduce returns by 0.5 percentage points to 1 percentage point, all else being equal. That raises the bar for holding American assets relative to home-country ones. The alternative to extra hedging is for big institutional investors to shrink their exposure to the U.S., for example by investing the marginal euro, yen or loonie elsewhere. Pension managers and insurers generally take months or years to change their investment policies, meaning any shift won't be immediate. Yet there are signs that both may already be happening in a small way. Traders and investors say the recent slide in the dollar is partly due to extra hedging activity, which mechanically weakens the currency that is being hedged. Meanwhile, non-U.S. participation in a recent 30-year Treasury bond auction was the lowest since 2019, Reuters reported. The danger, from a dollar holder's perspective, is that these trends reinforce one another. A weaker and more volatile greenback may inflict losses on foreign owners of U.S. assets, inducing them to sell or hedge more, in turn weakening the currency even further. At some point American assets might look cheap enough for global investors to pile back in – but not before the dollar falls further. Follow @Breakingviews, opens new tab on X
