CEE ECONOMY-Hungary's industrial output drop deepens, Czech retail sales keep falling

April 5 (Reuters) - A drop in Hungary's industrial output extended into February while Czech retail sales declined for a 10th straight month as the two central European economies sought to climb out of technical recessions. Weakness seen in the final quarters of 2022 has continued into early 2023, with high inflation sapping consumer demand and raising uncertainty for manufacturers who face high costs themselves. Hungary's industrial output fell by an annual 4.6% in February based on preliminary unadjusted data, a sharper drop than a forecast of 1.4%, the statistics office said on Wednesday. It follows a slight decline of 0.2% in the previous month. "The industrial performance of the first two months supports our expectation that the technical recession could have continued into the first quarter, due in part to lower domestic demand, as well as weak exports," ING economist Peter Virovacz said. Hungary, together with the Czech Republic, entered technical recession, showing two quarterly contractions in a row, at the end of 2022.

Both central banks have shifted their policy into neutral after sharp rate-hiking cycles between 2021 and 2022. But with inflation still in double digits - and above 20% in Hungary's case - rate setters have sought to cool expectations of rate cuts coming quickly, even if economies slow. The impact of strong inflation and high energy costs on households in the region has been seen in Czech retail activity, with a further 4.6% year-on-year decline reported in February, statistics office data showed on Wednesday. Retail sales have been falling each month since last May. "The preference of households is clear: pay increased costs and save money on the rest," Banka Creditas economist Petr Dufek said. "Until the income situation for Czech households turns around and improves in real terms, retail is in for a few leaner months."

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Hungary's industrial output Czech retail sales ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Jason Hovet in Prague and Gergely Szakacs in Budapest)