ZEW-Erste Bank Sentiment Indicator for Central and Eastern Europe - Improved Prospects for Economic Activity in Central and Eastern European Countries

The financial market experts who take part in the monthly survey conducted by the ZEW, the Centre for European Economic Research, Mannheim, supported by Erste Bank der oesterreichischen Sparkassen, Vienna, predominantly indicate optimistic business cycle expectations for the countries of Central and Eastern Europe. The assessment of the economic situation has worsened slightly. In contrast, negative expectations now outweigh positive expectations markedly for Austria. The experts also assess the Austrian economic situation more pessimistic compared to last month's survey.

The ZEW-Erste Bank Sentiment Indicator CEE that gives the balance of positive and negative assessments for the economic development in CEE countries within the next six months has improved considerably from 0 to 8.3 points. The higher balance can be ascribed to a pronounced increase of the share of experts expecting an improved economic development in the next six months. This is the first increase in economic expectations for the CEE region since the beginning of the survey in May 2007. Still, the majority of experts forecasts an unchanged future development. They predominantly assess the current situation in the CEE countries as good. The balance for the current economic situation in the CEE region has nevertheless worsened somewhat and now shows a value of 56 points.

The assessment for the Austrian economy develops in the opposite direction. The balances for the economic expectations as well as for the current situation have decreased by 3.7 and 7.8 points. The lower balance for the expectations can mostly be ascribed to a larger share of experts who forecast a worsening of the economic development, whereas the change in the assessment of the situation can be traced back to a rising share of experts that describe the economic circumstances as "normal" rather than "good". Still, more experts evaluate the current economic situation in Austria as good than in the countries of Central and Eastern Europe.

For Austria, inflation expectations have increased somewhat; the balance is higher compared to the previous month. Inflationary risks for all other CEE countries also seem to be on the upside. The share of experts who forecast higher inflation rates over a horizon of six months predominates, the balance is positive and higher compared to the August survey especially for Slovakia. The only exception is the Czech Republic. Here, the balance has decreased by 9.4 points. For Hungary, the expectations for a decreasing inflation rate predominate but the balance has increased by 1.2 points.

The financial market experts still assess the stock market development optimistic. All balances are positive even if lower compared to last month's survey. The decrease of the balances hits all indices but to a different extent. The highest losses are reported for the BET with -25.8 points, the WIG with -24.3 points, the SAX with -16.4 points and the NTX with -15.7 points. Only the experts' assessment of the Euro Stoxx 50 does not show major changes; the balance has only lost 2.4 points.

Concerning the stock market forecast, the effects of the subprime crisis in the USA have most likely influenced the assessment of the financial market experts. This month's special question also deals with this topic. The experts were asked to evaluate the possible effects of the crisis with regard to the global financial system, the US business cycle and the risk of further banking defaults.

Survey Procedure

The Financial Market Survey CEE is a survey carried out by ZEW Mannheim and Erste Bank der oesterreichischen Sparkassen AG Vienna, among financial market experts and has been conducted monthly since May 2007. It offers insights into the experts' assessment of the current economic situation and their expectations for Central and Eastern Europe, Austria and the Eurozone for the next six months concerning the general economic situation, inflation rates, interest rates, exchange rates and stock market indices. The CEE region observed in the survey consists of Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia and Slovenia.

The indicators reflect the difference between the percentage of analysts who are optimistic and the percentage of analysts who are pessimistic. The possible outcome of the balance lies between -100 and +100 points. Positive values of the balance indicate that the number of participants expecting a rise in the respective variable outweighs the number of participants with negative expectations.

Contact

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