ZEW-Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE) - Economic Expectations for Central and Eastern Europe Decline

The economic expectations for Central and Eastern Europe (CEE region) decline by 38.6 points to 20.5 points in February. Nevertheless, the ZEW-Erste Group Bank Sentiment Indicator remains in the positive range. The indicator reflects the expectations of the financial market experts regarding the economic development in the CEE region on a six month time horizon. It is calculated on a monthly basis by the Centre for European Economic Research (ZEW), Mannheim, with support from the Erste Group Bank, Vienna. The decline of the indicator can be put into perspective by the fact that the share of survey participants expecting an unchanged economic development in the CEE region within the next half year increases 10.2 percentage points to 34.7 percent. These answers are not incorporated into the calculation of the sentiment indicator.

The economic expectations for the Eurozone drop even stronger than those for the CEE region. The respective indicator declines by 41.9 points to 20.8 points in February. The economic outlook for Austria falls in the current survey by 36.6 points to 19.1 points. One of the reasons for the decline in the economic expectations for the CEE region, the Eurozone and Austria might be the current discussions about Greece financial debt situation and the concerns about other EU-countries also facing budgetary difficulties.

The assessment of the current economic situation in the CEE region decreases 6.0 points to minus 40.0 points in February. The respective balance for the Eurozone falls by 9.2 points to minus 38.5 points. The decline of the balances can be mitigated somewhat due to the fact that more than 50 percent of the survey participants evaluate the current situation in the CEE region and the Eurozone as unchanged. For Austria the assessment of the current economic situation even increases by 4.1 points to minus 18.1 point.

With regard to the inflation expectations, survey respondents that predict constant inflation rates for the CEE region prevail with 53.1 percent. On the contrary, the majority of the analysts expect further increasing inflation rates in Austria and the Eurozone. The share of experts that anticipate an interest rate increase in the Eurozone decreases in February. It currently adds up to 46percent after being at 49 percent in the previous month. Indeed the financial market experts evaluate the development of the stock markets within a six months time horizon more cautious than in the previous month. All three balances drop by double-digit points, but remain positive. The balance for the CEE stock market index (NTX) equals 13.9 points, for the Austrian ATX index 16.6 points and for the Eurostoxx 50 index 6.3 points. Almost 50 percent of the survey respondents expect the NTX and the ATX to rise in the coming half year.

Croatia

The economic expectations for Croatia fall in February 48.7 points to 11.4 points. This is the strongest decrease in country comparison. The share of survey respondents that expect an unchanged economic development in Croatia prevail with 43.2 percent. The evaluation of the current business situation in Croatia improves by 3.4 points to minus 41.3 points.

Poland

The sentiment indicator for Poland drops 28.5 points to 27.6 points. This is the smallest decrease in country comparison. Also the current economic situation is assessed more cautious than in the previous month. The respective indicator drops by 1.9 points to a level of minus 6.0 points. This is however still the best value in this category. Almost 60 percent of the polled experts predict that the Zloty will appreciate against the Euro in the next six months.

Romania

The economic outlook for Romania drops 42.1 points to 22.3 points in February. The evaluation of Romania’s current business situation also worsens. The respective indicator decreases 7.4 points to minus 66.0 points. The share of experts that expect the Romanian National Bank to cut the short-term interest rates rises to 62.5 percent in February.

Slovakia

The business outlook for Slovakia falls 41.7 points to 20.0 points in February. Again, this clear decrease can be attributed to the shift of the expectations from positive to neutral. This is also true for the assessment of the current economic situation. The respective indicator declines 12.7 points to minus 37.7 points.

Czech Republic

The economic expectations for the Czech Republic fall 41.5 points to 26.5 points in February. The balance that reflects the assessment of the current business situation in the country declines 4.1 points to minus 24.5 points. Also the inflation expectations decrease with the decline of the economic expectations.

Hungary

The economic outlook for Hungary goes down 38.8 points to 26.0 points. Nevertheless, Hungary shows with 50 percent the largest share of survey participants that expect an improvement of the economy within the next six months. The evaluation of the current economic situation worsens slightly by 3.2 points to minus 64.8 points. Just like last month the majority of the financial experts expect a decrease of the inflation rate in Hungary and a lowering of the short-term interest rates by the Hungarian National Bank in the coming six months.

Special Question

The Special Question in February examines the expectations of the financial market experts regarding the development of Foreign Direct Investments (FDI) in the CEE Region for the year 2010. Three out of four polled analysts expect that FDI in the CEE region as a whole will not decrease. 38 percent of them even expect an increase. Poland is assessed the most attractive country for foreign investors. Romania follows far behind on second place (18 Percent). Governmental support measures aiming to increase the attractiveness of a country for direct investment find vast acceptance among the experts. 73 percent of the analysts consider the measures as reasonable, 21 percent even as very reasonable.

Survey Procedure and Methodology

The Financial Market Survey CEE is a survey carried out among financial market experts by the Centre for European Economic Research in Mannheim (ZEW) and the Erste Group Bank AG Vienna. 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.

Among the analysed economies are the CEE region, the Eurozone as well as the Czech Republic, Poland, Hungary, Slovakia, Croatia, Romania and Austria.

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

For further information please contact

Mariela Borell, Phone: +49/621/1235-144, Fax: -223, E-Mail: borell@zew.de