World Bulletin / News Desk
Romania pulled itself out of recession in 2012's second quarter but the Hungarian and Czech economies contracted further as their powerhouse industrial sectors fell victim to a euro zone crisis that has already hit the region's consumers.
The single currency area's deepening slump has cut demand for exports in the European Union's manufacturing-heavy eastern states, where governments have also embarked on austerity measures that have hit other potential drivers of growth.
Public spending cuts and tax hikes imposed largely to counter the effects of the crisis have helped push the Czechs, Romanians and Hungarians into the red this year, while the region's biggest economy and former EU growth leader Poland is also bracing for a rapid slowdown.
That has put pressure on central banks to loosen policy, but persistent inflation, political turmoil, and the need to keep investors sweet on their currencies have caused policymakers to baulk at trying to spur growth with lower interest rates.
Hungary and the Czech Republic each saw their economies shrink by 0.2 percent between April and June when compared with the previous three months, their second and third straight quarters of contraction respectively.
In both countries, evidence of shrinking domestic demand appeared in falling retail sales, construction, investment and other data at the start of the year. That was followed in May by a drop in production by industry, the engine of exports that accounts for more than 80 percent of output in both countries.
"At first sight, it seems tempting to conclude that it's the fact that Hungary and the Czech Republic are most open economies and that's why they are suffering, but if you look at the data it's also that they have austerity at home," said Neil Shearing, an economist at London-based Capital Economics.
He said the region was at risk from any downward spiral in the euro zone crisis, which could deepen once policymakers return from holiday and begin trying to tackle financing issues in Greece, Spain andItaly next month.
"If we're right about that, then no economy will be immune to the fallout. Within the region Romanialooks the most vulnerable, and so does Hungary," he said.
Data on Tuesday showing the euro zone economy as a whole shrank 0.2 percent in the second quarter did not brighten that outlook. The monthly ZEW economic sentiment index in the bloc's growth engineGermany meanwhile plunged to negative 25.5, versus market expectations that it would stay flat at negative 19.6.
Romania pulled out of recession, its economy expanding by 0.5 percent from the previous quarter and by 1.2 percent compared with the same period a year earlier. The better-than-expected number pushed the leu currency to a one-month high after it hit an historic low last week.
The country has been shaken by a political battle between leftist Prime Minister Victor Ponta and suspended President Traian Basescu that has drawn sharp criticism from Romania's allies in Washington, Brussels and other EU states and threatened a 5 billion euro aid package and economic backstop.
At a news conference in Bucharest, the International Monetary Fund cut its full year growth forecast for the poor Balkan state to 0.9 percent, from 1.5 percent.
Following a two-week-long review of Romania's aid deal, IMF mission chief Erik de Vrijer blamed political turmoil, the euro zone crisis, and a severe drought that has hit the country's prominent agriculture sector for the downwards revision.
He said Ponta's government had agreed to stick to its goal of keeping the budget deficit to below 3 percent of GDP this year, but had to meet benchmarks on raising gas prices, selling state firms and other measures by next month.
He added that the central bank - which analysts say has been prevented from cutting interest rates because it fears political turmoil could trigger investor flight and hit the leu - could actually tighten policy if the currency were to tumble further.
"The bank can be very prudent and, if there are pressures on the exchange rate ... tighten monetary policy," de Vrijer said.
Hungary is in a similar position. July inflation data released on Tuesday showed prices rose 5.8 percent on an annual basis, more than forecast and above June's 5.6 percent.
Some members of the central bank's monetary policy council still support a cut in interest rates to boost growth, but analysts say investor scepticism over Prime Minister Viktor Orban's unorthodox economic policies has stayed their hand.
He repeatedly spooked investors last year with the de facto nationalisation of private pension assets, introducing Europe's biggest bank tax, and other measures.
Analysts say he could shore up confidence if he were to seal an IMF-backed aid deal similar toRomania's, but talks between the two sides have run into repeated obstacles. Budapest and IMF/EU negotiators are expected to resume talks in September.
"Despite the economy being in recession, growth data will not be the key factor in the upcoming MPC decisions," Goldman Sachs said in a research note.
"To cut rates, the MPC will have to be comfortable with the market perceptions of the Hungarian risk premium, risks to the forint, and prospects for external financing; this can happen once the new financing agreement with the IMF and the EU is secured."
Other data showed Slovakia's export-driven economy expanded by a much faster-than-expected 0.7 percent versus the first quarter. Bulgaria's economy grew 0.2 percent on a quarterly basis.
The move away from the U.S. dollar is yet another reaction to Western sanctions placed on Russia since it annexed Crimea from Ukraine in March.
Norwegian oil company Statoil and Shell won an exploration license in the southeastern part of Algeria.
Under EU rules, if the Commission's suspicion that the tax treatment amounted to illegal state aid is proven, the company could be forced to pay that money back to the Irish government.
The court ordered searches of all known offices and residences of the former first lady and Congresswoman Imelda Marcos in Manila and Ilocos Norte in a bid to recover the works of art.
British energy expert Nick Butler said Israel should use its gas reserves domestically as it cannot compete with other markets.
After several rounds of talks brokered by the European Union, Moscow and Kiev reported progress at a meeting last week in Berlin.
The company's stock price has regained some of its recent losses but a European Union investigation could spell trouble for the tech giant.
U.S. planes are flying about 60 reconnaissance sorties per day, and some 1,600 U.S. troops are being deployed in Iraq.
"There are good reasons to continue the energy partnership with Russia," she said and noted that within the European Union different countries had different levels of dependency on supplies
Osborne said he would clamp down on technology companies which "go to extraordinary lengths to pay little or no tax here" as part of his plans to fix the budget shortfall.
Union wants Lufthansa to maintain a scheme that allows pilots to retire early at the age of 55 and still receive up to 60 percent of their pay
The pilots decided to end the strike without reaching an agreement with the French airline even though talks resumed
Ozkan Yorgancioglu, prime minister of the Turkish Republic of Northern Cyprus, said Israel's gas should be sent to Europe via Turkey and Cyprus
Rosneft and U.S. energy giant ExxonMobil have found huge oil reserves in the Kara Sea region
Cy Tokmakjian sentenced to 15 years in prison for bribery and other economic charges in a case his company
Exxon and Rosneft signed a $3.2 billion agreement in 2011 to develop the region.