ZEW-Erste Bank Sentiment Indicator for Central and Eastern Europe - Economic Sentiment for Central and Eastern Europe Recovers Considerably

The economic sentiment indicator for Central and Eastern Europe (CEE), which is calculated on the basis of a monthly survey conducted by the Centre for European Economic Research (ZEW), supported by Erste Bank der oesterreichischen Sparkassen AG, Vienna, has recovered in March. The CEE indicator that shows the balance of positive and negative assessments of the economic outlook in the next six months rises by 6.4 points and now stands at minus 22.4 points. Not only the expectations but also the assessments of the current economic situation in the CEE region have improved markedly by 9.8 points and now stand at 40.0 points.

The improvement of the balances is caused by a reduction of the fraction of participants who do not expect a change of the economic situation and who evaluate the current state as acceptable. Still, this group remains the largest faction of financial market experts participating in the survey.

Similar to last month, the economic expectations for the euro zone have seen the strongest upturn. The indicator climbs by 15.0 points to minus 31.4 points. The current economic situation is assessed as positive as well. The corresponding balance increases by 2.4 points to 11.8 points. In Austria both indicators worsen compared to the February survey.

The expectations for the Hungarian economy for the upcoming six months continue to be at the highest level within the considered countries. The indicator rises by 8.1 points to 13.6 points. In contrast to the February survey, the forecast for the Polish economy improve by 7.5 points in March.

The financial experts evaluate the current economic situation for most CEE countries more optimistically in March. The balance for Slovakia shows the strongest growth by 14.3 points to 67.3 points, followed by the Czech Republic with an increase of 12.5 points to 65.3 points. Apart from Austria, the assessment of the current economic situation worsens only for Hungary in the March survey.

For all countries observed in this survey, the financial market experts expect inflation rate hikes. Hungary is the only exception. The strong decreases of the balances in February did not continue in March. While the balance for the CEE region drops slightly by 1.6 points to 18.4 points and the balance for Romania falls by 13.0 points to 15.5 points, the risk of rising inflation rates is higher for all countries when compared to last month’s results. Still, 54.2 percent of the participants expect an interest rate cut in the euro zone in the second half of this year. The balance climbs by 7.1 points to minus 43.8 points.

The forecasts for the development of the stock markets remain favourable, similar to last month. While 53.9 percent of the respondents consider a rising NTX probable, 28.2 percent anticipate a weaker CEE stock index. The balance declines slightly by 0.4 points to 25.7 points.

The expectations concerning the currency exchange rates are mixed. Whereas a majority of experts predict a devaluation of the Czech, Slovakian and Romanian currencies compared to the Euro, they foresee an appreciation of the Croatian, Hungarian and Polish currencies.

Based on the answers of the financial market experts we analyse in this month’s special question the markets for corporate transactions in the CEE region. While 31 percent of the participants expect a downturn of mergers and acquisitions (M&A) activities in the region in 2008, 26 percent expect an unchanged and 20 percent a higher level of M&A activities. According to 61 percent of the experts, Poland will be the country with the highest number of M&A transactions, followed by Romania (22 percent). Both countries are considered the most attractive for foreign direct investment. The lowest number of transactions is supposed to take place in Hungary. The majority (54 percent) of the survey respondents see cross-border takeovers dominating the M&A market. Investors from Germany, Austria and the United States are expected to be most active. Following the financial market experts, the biggest consolidation should happen in the energy and utilities sector. Furthermore, companies in the financial services sector are seen as interesting targets for acquisitions. The lowest level of activity is forecasted for the telecommunications sector.

When asked about a prominent take over in 2008, the respondents pointed towards the Austrian oil and gas company OMV increasing its stake in its Hungarian competitor MOL.

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, the 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