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CEE ECONOMY-Czech, Polish PMIs hit fresh records as central Europe recovers

* Czech, Polish business conditions improve at record rate

* Hungarian PMI rises, growth seen jumping this year

* Factories still face supply snags, cost pressures (Adds analysts, details)

July 1 (Reuters) - Czech and Polish manufacturing activity grew at a record pace for the second month in a row in June as orders rose and economies reopened after lockdowns to curb the COVID-19 pandemic, pointing to a rapid recovery in central Europe.

IHS Markit’s Purchasing Managers’ Index (PMI) for Poland rose to 59.4 in June, higher than expected and topping a previous record of 57.2 set in May, data showed on Thursday.

The Czech PMI reading hit 62.7 in June. Hungary’s PMI, from a different publisher, rose to 54.7, comfortably above the 50 mark that divides expansion from contraction.

Strong PMI readings in the past few months have given hope that central European economies are on a solid recovery path.

But they also show the constraints factories are facing as pandemic disruptions linger, with global component shortages and transport bottlenecks adding to costs.

Labour shortages are again appearing and adding to high inflationary pressures in the region, which last week prompted the Hungarian and Czech central banks to return to interest rate hikes.

“Manufacturing PMIs continue to paint a bright picture of the ongoing recovery, aided by the easing of lockdown restrictions and partial release of the pent-up demand accompanying the economic reopening,” Erste Group Bank said.

“The recovery should continue well in (the third quarter), but the current supply-side issues and cost pressures are unlikely to dissipate quickly.”

The materials shortage is most visible in the car manufacturing sector and a lack of semiconductors. In the Czech Republic, economic bellwether Skoda Auto, part of the Volkswagen Group, has had to halt some production and cut shifts.

Polish backlogs grew at the fastest rate since 2003, according to the PMI data. Raw materials shortages and transportation problems also drove input and output prices to record highs.

Those components have “artificially” driven overall PMI higher although the picture of recovery remains intact, coming as the pandemic situation has improved in the region with infections falling and vaccinations rising.

The Czech central bank said last week the improving pandemic outlook would contribute to a faster recovery. Hungary’s central bank has forecast growth of 6.2% in 2021.

Both central banks last week became the first in the European Union to hike interest rates since the pandemic started in early 2020. Poland’s central bank, though, has said it is too soon for tighter policy.

Reporting by Jason Hovet and Jan Lopatka in Prague, Alan Charlish in Warsaw, and Gergely Szakacs in Budapest; Editing by Catherine Evans and Kim Coghill

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