By Jason Hovet
PRAGUE, Feb 11 (Reuters) - Industrial output in the Czech Republic plunged for a third straight month in December and the statistics office said it indicated the economy may have already contracted in the last three months of 2008.
Another of central Europe's industry-heavy economies, Hungary, is widely expected to report a fourth contraction because of a collapse in demand in the euro zone, their main market, for the cars and electronics the region produces.
Czech output dropped by 14.6 percent year-on-year in December, worse than forecast and, when adjusted for working days, an acceleration from November when the headline fall reached 17.4 percent.
Analysts, expecting an 11.0 percent fall, said the eroding picture would give more ammunition for the Czech central bank to continue slashing interest rates and could strengthen calls for the government to provide fiscal stimulus.
The stats office said the drop could have meant the economy contracted last quarter and it may not have begun to recover.
"From the drop (in industry) we can conclude a certain drop in gross domestic product performance (growth) in the fourth quarter, but we do not know how much because we have not made the calculations," said Josef Vlasek, head of industry statistics.
"The drop in orders in the fourth quarter indicates that the first months of 2009 will not be the time when a recovery should come."
He added: "The pace (of GDP) will be slower. I cannot say now if it will be a minus. I do not exclude it."
Foreign orders in December sank nearly 30 percent for a second straight month, the data showed.
The Czech crown slipped to as low as 28.699 after the data from 28.555, but later rebounded to 28.52 by 0850 GMT.
The data mirrored a fall in production in neighbouring Slovakia, the most prolific car-producing country in the world per capita, and a slowing in consumer price growth across the region.
RATES TO HEAD LOWER
The Czech central bank has slashed interest rates by 2 percentage points since last year to 1.75 percent.
Last week, it forecast a 0.3 percent contraction in the economy for this year.
And although bank Governor Zdenek Tuma said he could imagine the easing cycle was near its end, analysts said the dire production figures indicated more cuts, with many expecting a trough of 1 percent.
Some said the Finance Ministry, working on budget alternatives for up to a 2 percent contraction in 2009, may also step in with more spending to boost the economy.
"Despite a Czech central bank warning, interest rates will likely continue to fall and preparations of a fiscal stimulus package should speed up," said David Marek, chief economist at Patria Finance. Czech, Slovak and Hungarian fourth quarter 2008 GDP data are due out on Friday.
Hungary is expected to contract by about 3 percent this year, while Poland and Slovakia are expected to eke out modest growth, but some analysts have said all emerging European countries may face the prospect of a recession this year.
(Reporting by Jason Hovet; Editing by Ruth Pitchford)