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CEE manufacturing strengthens despite Greek debt woes

[WARSAW] Manufacturing in Central Europe gained traction in June, signalling the region with deep trade ties to the euro zone has so far remained immune to the fallout from Greece's debt woes.

Supported by a sharp rise in domestic new orders, Poland's HSBC manufacturing PMI jumped back to 54.4 last month from 52.4 in May, beating the forecasts of 13 economists' polled by Reuters. "The health of the Polish manufacturing economy improved markedly in June," Markit said.

In the Czech Republic, the manufacturing PMI hit a 13-month high of 56.9 thanks to strong growth in all main indicators and especially employment.

In Hungary, where the manufacturing PMI is calculated using a different methodology, the PMI came in at 55.1, slightly lower than 55.2 in May, but well above the long-term average for June.

Demand from the euro zone accounts for about 62 per cent of Czech exports, about 57 per cent of Hungary's exports and 54 per cent of Poland's exports.

Unlike the Balkans, where millions of people have deposits in banks owned by Greek lenders, both Poland, Czech Republic and Hungary do not have any significant direct trade or banking ties with Greece.

Athens defaulted on a loan with the International Monetary Fund on Tuesday raising investors' concerns that it could ultimately lead to the country's exit from the euro common currency.

On Wednesday, a Greek government official said Prime Minister Alexis Tsipras accepted the international creditors'proposal with some changes. "I think that any contagion to Poland from the Greek crisis would be more likely to come via the Balkans and people using the zloty as a proxy hedge," said Peter Attard Montalto, economist at Nomura. "I do not think that Greece can massively derail growth in the euro zone." The general rise in investors' risk aversion due to the Greek crisis has led to some weakening of the Polish zloty and Hungarian forint, making exports from these countries more price-competitive.

Signs of the gradual economic revival across central and eastern Europe are visible in the region's transport sector. "We have been on an upswing when it comes to demand for shipping and especially storage," said Jan Kucera, chief executive of Bohemia Cargo logistics firm based in Decin, northern Czech Republic. "When it comes to shipping, we have for a long time been facing shortage of capacity. In storage, we have expanded twice in the past year so we are meeting demand that way." REUTERS