Central Europe growth likely steady

In Central Europe, solid growth continued in Q2 and will prove to be persistent. In Poland, growth has been steady for the last 10 quarters, and this trend is expected to continue with growth at 3.4% y/y, the same pace as in Q1 (SA). 

"In recent quarters, domestic demand has been the main growth driver (up 5% y/y in Q1), more contribution from exports in Q2 and a slight easing in domestic demand", says Barclays. 

There is some upside risk to the forecast if domestic demand remains elevated (the strong July PMI supports this view). 

"For Hungary, steady growth is expected in Q2 of 3.3% y/y. During the past two quarters rising consumption and surging exports have offset declines in investment which had previously been artificially supported by rising EU transfers and central bank subsidised lending", added Barclays. 

There are some downside risks to the forecasts and expect moderation of growth going forward on reduced investment spending (the low July PMI reading could presage this growth easing, though PMI has been volatile and an unreliable indicator of Hungary growth). 

In the Czech Republic, growth surged in Q1 and appears to have remained elevated in Q2 and beyond, as indicated by the elevated PMI levels, rising retail sales and IP. While Israel growth decelerated in Q1 to just 2.0% q/q (saar), a reversion is expected to normal in Q2 at 2.9%, forecasts Barclays.