The Czech and Hungarian economies remain in recession. The fact was confirmed by releases of GDP flash estimates for 2012Q3 showing that aggregate output in both Central European economies dropped 1.5% in real terms year-on-year. On quarter-on-quarter basis, the Czech economy decreased by 0.3%, while the Hungarian GDP fell 0.2%. In contrast to that, the German economy managed to grow by 0.9% year-on-year in the third quarter.
Although the detailed structure of GDP is not available yet, it is evident that both CEE economies suffer of weak domestic demand – particularly consumptions that is squeezed by ongoing fiscal restriction. Taking this into account, relaxed monetary policies in both the Czech Republic and Hungary seem warranted.
Surprisingly, both the Czech koruna and the forint have failed to respond to weak GDP figures. Data implications are clearly negative as GDP figures reconfirm the story of sustained real convergence to be really dead.