Manufacturing industry in Central and Eastern Europe (CEE) has been experiencing a strong upward trend since the beginning of 2004 and has thus become the engine of economic growth in the region. Economists at Bank Austria Creditanstalt (BA-CA) expect that this trend will continue to accelerate in the current year. “After 3.7 per cent in the previous year, economic growth in the new EU member states will average 4.3 per cent in 2004,” says Marianne Kager, Chief Economist of Bank Austria Creditanstalt. The most significant contributions to this strong economic performance come from the Baltic countries, Poland and Slovakia. GDP growth in the Czech Republic, Slovenia and Hungary will also be stronger than in the previous year, reaching at least 3 per cent.
The main factor driving GDP growth is the dynamic development in the industrial sector, a trend which started in the second half of 2003 and gained further momentum in the first three months of 2004. From January to March, industrial output in Central and Eastern Europe rose by an average of over 12 per cent. “This favourable development is not limited to the new EU member states. Manufacturing industry is also booming in the economies of South-East Europe,” Marianne Kager adds. In Bulgaria, for example, industrial output in the first quarter of 2004 was 17.8 per cent higher than in the same period of the previous year. An upward trend was also seen in Croatia and – for the first time in many months – in Serbia and Montenegro as well as in Bosnia and Herzegovina.
“The boom is mainly driven by export-oriented sectors, especially the automotive industry,” says Walter Pudschedl, a CEE expert at Bank Austria Creditanstalt. In the Czech Republic, output of motor vehicles in the first quarter of 2004 rose by 10 per cent compared with the previous year; the increase in Slovakia and Hungary even exceeded 30 per cent. In these three countries, the chemicals and metal-working industries as well as the production of electric and optical equipment recorded disproportionately high growth rates. In Poland and Slovenia, output in these industries also grew strongly, though at slightly lower rates.
The upswing in the industrial sector was reflected in a significant increase in visible exports. In the eight new EU member states in Central and Eastern Europe, exports rose by an average of 7 per cent (in euro terms). Exports of goods from Estonia, Hungary, Latvia and Slovakia increased by up to 20 per cent. In Poland, export growth in the first three months of 2004 reached only 3.6 per cent compared with the same period in the previous year. As domestic demand is a major factor in the growth of industrial output, the boom in Poland’s manufacturing sector is not very strongly reflected in exports.
“The upswing in the industrial sector in CEE countries demonstrates the high level of international competitiveness. This suggests that economic growth in the new EU member states will remain strong,” says Marianne Kager. With economic growth averaging 4 per cent in the region, the impressive process of catching up with the “old” EU member states will continue in 2005.