Commerzbank’s Tatha Ghose notes that improving PMIs in Poland, Czech Republic and Hungary had signalled a potential upswing, helped by Germany’s earlier recovery signs. However, he argues the Iran war and energy price shock now overshadow that momentum, likely worsening real economies in the region unless geopolitical tensions de-escalate soon, leaving the earlier PMI-based optimism outdated.

CEE growth hopes hit by war shock

"Among Eastern European PMI indices, we find the Czech PMI to be consistently reliable and free from noise (whereas the Hungarian PMI is the most volatile and unreliable). In March, the Czech PMI surprised to the upside, marking a clear and discernible improvement trend over the past few months. Being a proxy for the bloc, this presented a promising sign. The Polish PMI also showed tentative steps toward reversing earlier declines, moving closer to the 50 mark"

"These trends coincided with indications of improvement in the German economy earlier this year, which suggested that the CEE bloc could have been on the brink of an economic upswing, supported by Germany’s recovery. Of course, the context has shifted entirely due to the Iran war and the resultant energy price shock. "

"These events have overshadowed what could have been a brighter economic outlook and are beyond the control of regional policymakers. Given the highly volatile nature of the situation, it’s worth noting that these geopolitical developments could resolve just as unpredictably as they arose – potentially providing a renewed opportunity for optimism, if this were to occur soon enough."

"For now, the shock will likely contribute to a general deterioration in the real economies of the region, particularly as Germany will also be susceptible to the rising energy cost. In other words, the recent improvement in PMIs painted a positive picture, but it is already outdated, unless we see a de-escalation of the geopolitical situation soon."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)