By Jana Mlcochova
PRAGUE, Dec 8 (Reuters) - A grim set of Czech and Slovak data showed economic activity in central European economies is slowing faster than expected, driven by a euro zone recession.
Czech October foreign trade showed an unexpected deficit as exports to western Europe dwindled.
The trade shortfall of 3.95 billion crown ($196 million) was the worst monthly figure since December 2005. The market had expected a 7.7 billion crown surplus.
A separate set of data showed Slovakia's industrial production was flat on the year in October, the weakest performance since March 2005 and below the market's forecast for a 4.7 percent rise.
"We now expect Hungary, the Czech Republic, and Slovakia to show a contraction next year," said Miroslav Plojhar, a London-based analyst at JP Morgan.
He said the bank had changed its central European forecasts from the beginning of the year when it had assumed western Europe, the region's main trading partner, would not fall into a recession as quickly as it has.
Central European governments and central banks have been slashing their growth forecasts for next year but none, with the exception of Hungary, expects a contraction.
The Czech central bank predicts a 2.9 percent growth rate in 2009 although its chief Zdenek Tuma has said that expectation may now look rosy.
PENDING CZECH RATE CUT
Czech consumer prices slumped by half a percentage point in November, their weakest performance in two years, strengthening the case for further interest rate cuts as price pressures swiftly abate.
The monthly price drop came on the back of plunging fuel prices and cheaper food. It was in line with market expectations in a Reuters poll, and put year-on-year inflation at 4.4 percent, sharply down from 6.0 percent in October.
The figure came far below the central bank's estimate for a 5.5 percent annual rate.
"All the data released this morning are sending a clear message: the Czech central bank has a lot of room for further interest rate cuts," said Radomir Jac, chief analyst at Generali PPF Asset management in Prague.
"The performance of machinery and transport equipment exports says that the Czech economy is heavily hit by recession in western Europe and economic slowdown in emerging markets economies, and the picture will remain bleak well into the first half of 2009."
The central bank slashed interest rates by a hefty 75 basis points to 2.75 percent last month, and Czech rates now stand 25 basis points above those of the European Central Bank. The Czech bank next meets to discuss rates on Dec. 17.
Nominal exports slumped by 10.7 percent year-on-year in October, while imports dipped by 5.9 percent.
The central European economy has been highly dependent on foreign trade for its wealth catch-up with western Europe.
But companies in the big automotive sector, led by Volkswagen's Skoda Auto, have been announcing work stoppages and job cuts as foreign and domestic orders dry up.
A separate unemployment report showed the Czech jobless rate rose to 5.3 percent in November from 5.2 percent in the previous month. (Editing by Stephen Nisbet)