ZEW-Erste Group Bank Economic Sentiment Indicator CEE – Central and Eastern Europe Maintains Favourable Economic Situation

The survey among financial market experts conducted by the Centre for European Economic Research (ZEW), Mannheim, supported by the Erste Group Bank AG, Vienna, shows that experts positively assess the current economic situation in Central and Eastern Europe. Their forecasts for the coming six months are just as optimistic. The situation in Austria is rated very similarly.

The economic sentiment indicator CEE, the balance of the positive and negative expectations for the future economic development over a period of six months, fell by 7.7 points to 10.6 points. The majority of the financial market experts, 78.6 per cent, do not expect any changes to the status quo. 16 per cent of the interviewed people (nine per cent less than a month ago) estimate an improvement and 5.4 per cent (1.2 per cent less than a month ago) expect a deteriorating situation. The overall assessment of the current situation in Central and Eastern Europe is positive (balance: 62.1 per cent).

Although the financial market experts consider Austria’s economic conditions to be better than those in Central and Eastern Europe (balance: 74.5 points), the prospects for this country are assessed rather neutrally. 89.1 per cent of the interviewed people assume a change of the present economic situation over the next six months.

In comparison with the previous month, inflation expectations for the CEE region have slightly risen. The corresponding balance lies at 30 points, 5 points higher than calculated in the May survey. There are, however, significant differences between the different countries. Whereas 62.8 per cent of the experts forecast rising inflation rates in the Czech Republic, 76.8 per cent expect a declining inflation in Hungary. These prospects are reflected in the respective balances. The experts still estimate that Austria will have to face increasing inflation rates. The accompanying balance is 20.4 points compared to 24 points in the previous month.

The assessment of short-term and long-term interest rates in the regarded countries has developed differently. Especially the rate cut expectations for Slovakia forecasted in the previous month have dropped substantially resulting in an almost-cleared balance (-2.2 points) of higher and lower short-term interest rates.

The optimism regarding the stock market development is still very present. A balance of 51.2 per cent of the experts, for instance, expects the ATX index to rise. These are 14.6 points less than calculated in the May survey. The balance of all other indices decreased as well in comparison to the previous month. Slovenia and Croatia show a particularly strong decline (-50.2 and 34.2 points respectively).

The financial market experts forecast anappreciation of all examined national currencies in the next six months. The balance of answers is positive throughout. The currency that has been most positively assessed is the Slovak koruna (in the previous month it was the Polish zloty).

The special question refers to the economic network in the Central and Eastern European countries and the compliance of macroeconomic fluctuations with the EMU. Whereas, according to the answers, the CEE countries face an average degree of synchronisation, the level of correspondence with the economy of the EMU is rather low.

Survey Procedure and Methodology

An analogous survey for Germany has been conducted by the ZEW since 1991. A corresponding survey for Switzerland has been carried out since June 2006.The target of this survey is to develop indicators describing the economic conditions in Central and Eastern Europe (CEE) as well as in Austria. The CEE region observed in the survey consists of Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia and Slovenia.

The financial experts are questioned on their evaluations of the current business situation, the medium-term prospects of the respective economies and their expectations as to the development of the inflation rate, the short- and long-term interest rates, the exchange rates and stock prices on a six month time horizon. The analysts' assessments reflect the qualitative direction of the estimated changes.

The monthly ‘Financial Market Report CEE' contains the results for every Central and Eastern European country in detail.

Contact

Dr. Katrin Ullrich, E-mail: ullrich@zew.de