Eastern Europe’s economic boom, which produced some of the world’s fastest growth rates, passed its peak as inflation returns and interest rates begin to rise.
Expansion fueled by higher investment, rising wages and consumer spending slowed on an annual basis in the first quarter in the Czech Republic and Romania, while holding steady in Hungary and Bulgaria, data released Tuesday showed. Poland overtook Romania as the star performer, accelerating to 5.1 percent, more than double the advance in the euro area.
Economies from the Baltics to the Black Sea have enjoyed a bumper period of growth as inflation and borrowing costs remained low, while the euro zone — the region’s biggest trading partner — recovered from years of crisis. But labor shortages are starting to weigh, while the boom has rekindled price pressure in nations such as the Czech Republic and Romania, prompting rate hikes. The European Union forecasts a slowdown this year for all the its ex-communist members except Bulgaria and Slovakia.
“It isn’t a bad reading at all but all of these rates are well above potential,” Raffaella Tenconi, chief economist at ADA Economics Ltd. in London, said by phone. “We’ve passed the best of the business cycle — the question now is how fast will it go down.”
Currencies in the region weakened against the euro as investors continued to turn away from riskier emerging markets. The forint tumbled as much as 0.6 percent, reaching the weakest level in almost two years, while Poland’s zloty, the Czech koruna and Romania’s leu all fell at least 0.1 percent.