Central Europe shrugs off softness in euro-zone

The latest data suggest that, while GDP growth in Central Europe has now peaked, it remained strong at 4.5-5.0% y/y in Q1. That came in spite of a raft of softer activity and survey figures from key euro-zone trading partners (notably Germany). Admittedly, some of the figures from Central Europe’s export-oriented sectors have weakened. The region’s manufacturing PMIs were a bit weaker in Q1 than in Q4 of last year and industrial production growth softened a little. But slower growth in industry was offset by faster growth in retail spending. Households have benefitted from rapid wage growth, a dip in inflation and loose policy. That said, the current pace of growth in consumer-facing sectors is unlikely to be sustained and this is one reason why we think GDP growth will slow across the region later this year and into 2019.