ZEW-Erste Bank Sentiment Indicator for Central and Eastern Europe - Economic Expectations for the CEE Region Stabilise; Outlook for the Stock Markets Improves Significantly

The economic sentiment indicator for Central and Eastern Europe (CEE), which is calculated on a monthly basis by the Centre for European Economic Research (ZEW), supported by Erste Bank der oesterreichischen Sparkassen, Vienna, has stabilised in February showing a slight increase of 0.2 points compared to the previous month. The CEE indicator, calculated as the balance of positive and negative assessments of the economic outlook over the next six months, is now taking a value of minus 28.8 points.

The balance for the current economic situation has fallen by 7.7 points in February to a level of 30.2 points. Like in the months before, the majority of the experts do not expect any change of the economic situation in the region (55.8 percent) and assess the current situation as acceptable (66.0 percent).

The economic expectations for the Eurozone and Austria reflect to an even greater extent the improved sentiment of financial market experts in February. Although the corresponding indices remain negative (-46.4 and -22.7 points), they gained 16.9 and 7.4 points.

Although the economic indices for all surveyed CEE countries except for Hungary remain negative in February, the economic forecasts have improved for most of the countries compared to the previous month. The forecasts for Hungary and Romania improve the most with an increase of 15.6 and 8.8 points. The results of the February survey continue with a positive assessment of the current economic situation in the Czech Republic, Slovakia, Poland and Croatia and a rather negative assessment of Hungary and Romania, like in the previous month.

According to the financial market experts the risk of rising inflation rates during the next six months has diminished significantly both for the CEE countries and the Eurozone. The balance for Central and Eastern Europe has decreased by 27.6 points to a level of 20.0 points. The decrease is even more pronounced for the Eurozone and Austria (-34.5 points and -49.2 points) with balances of 9.7 and 4.6 points. Thus, the inflation should not be a reason for the European Central Bank to refuse to lower interest rates. In line with this, 54.7 percent of the surveyed financial experts consider a cut in short-term interest rates for the Eurozone during the second half of the year to be likely. This is 24.2 percentage points more than in January. Only 3.8 percent forecast an increase of the three-month interbank rate.

The stock market indices clearly indicate a positive turn. Their growth has been double-digit and the balances of all examined countries have turned positive. 50.0 percent (+17.3 percentage points) of the surveyed experts expect an advance of the NTX in the next six months and 51.1 percent (+14.3 percentage points) expect the ATX to increase.

The special question of the February survey focuses on the labour markets in Central and Eastern Europe. 35.3 percent of the financial experts who answered the question said that they expect the mean unemployment rate of the CEE region to fall by the end of the year 2008. On the other hand, 22.1 percent expect the region’s unemployment rate to increase. The experts predict the highest rate for Poland (30.8 percent of the answers), followed by Hungary, Slovakia and Croatia (15.4 percent of the answers per country). While 50.0 percent of the survey participants believe that the lowest unemployment rate will be measured in the Czech Republic, 27.3 percent anticipate it in Romania.

The answers concerning the expected wage levels are heterogeneous with 40.9 percent of the experts forecasting rising wages and, at the same time, 40.9 percent anticipating wages to remain unchanged. Inflationary pressure is rated as a rather unlikely consequence. However, the experts forecast further price increases for food and services as well as lower profit margins in the manufacturing sector.

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. Mariela Borell, Phone: +49/621/1235-144, E-Mail: borell@zew.de