Sept 23 - Polish retail sales rose again in August, showing the country's consumption-driven recovery remains on track, but data from nearby Hungary showed a plunge as tax hikes further choked household consumption.
The figures underscore the contrasting fortunes of emerging Europe's economies as they struggle to find the path to recovery from their biggest crisis since the transition from communism.
Poland, which boasts the region's biggest internal market with 38 million consumers, reported a 5.2 percent annual rise in retail sales in August after a 5.7 percent increase in July.
By contrast, Hungary, with one of the most fragile economies in the 27-member European Union, posted a 6.6 percent annual drop in July.
"These two countries are in complete contrast," UBS economist Gyorgy Kovacs said. "Poland will be Europe's most dynamic economy this year."
"Polish households' financial state is stable, consumers are more optimistic, their labour market is relatively strong and access to credit is there," Kovacs said. "Hungary is meanwhile going through another budget austerity that's aggravated by the VAT hike."
Poland has fared better than its recession-hit regional peers and managed to avoid a single quarter of negative growth largely due to its strong internal market and zloty weakening, which helped exports.
Analysts expect Poland's economy to grow by 1.8 percent in 2010, up from 0.9 percent seen in 2009. But they have warned that strong retail figures are not a given going forward as slower than expected wage growth and an expected fall in employment could dent consumption and hamper the recovery.
"Labour market trends signal that sales and demand should weaken," Piotr Bujak, a senior economist at Zachodni WBK said.
"July and August, the holiday months, could have boosted the dynamics, but it seems only to be temporary and in the coming months demand will weaken further, given unemployment," Bujak added.
Poland's unemployment rate was unchanged at 10.8 percent in August but the government expect a rise in the coming months to somewhere under 13 percent while Hungary's jobless rate rose to 9.7 percent in May-July, with analysts expecting a surge above 10 percent by the end of the year.
HUNGARY SALES PLUNGE
Hungarian retail sales plunged in July as the government increased the value-added tax rate to 25 percent from 20 percent to boost revenues and plug a hole in the budget.
The country has suffered from a collapse in western demand for the cars and other products it produces, a factor that has hit driven up unemployment and flooded into domestic demand.
The government is also hampered by strained finances that will force it to continue cutting spending and expects the economy to shrink 6.7 percent in 2009, with growth returning only in 2011.
Analysts said the sales figure accounted for a big one-off dent but the overall trend was still discouraging and lacked hope for a positive trend shift.
"The figure shows the same patterns as before, that unfavourable wage trends, the decline in purchasing power, stricter bank lending conditions, high household debt, rising unemployment, and an uncertain outlook continue to keep household consumption under pressure," CIB Bank analyst Gyorgy Barta said.
Ratings agency Moody's warned on Tuesday that despite steady progress made by Hungary, it remained in a state of fragile stabilisation and it was too early to speak of recovery.