ZEW-Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE)- Economic Expectations for CEE Remain at a Positive Level Despite the Current Decrease

The economic expectations for Central and Eastern Europe (CEE) decrease by 9.3 points to 28.0 points in April. Thus, the CEE economic sentiment indicator remains positive. The majority of financial market experts (48.0 percent) expect an unchanged development of the business cycle on a six month horizon. The CEE indicator is conducted monthly by the Centre for European Economic Research (ZEW), Mannheim, with the support from the Erste Group Bank, Vienna.

In this month’s survey, the economic expectations for Austria and the Eurozone improve slightly. The sentiment indicator for Austria improves marginally by 0.3 points to the 27.6 mark. The respective indicator for the Eurozone increases by 3.0 points to 29.6 points.

After the significant improvement in the evaluation of the current economic situation in the CEE region in March, the respective indicator decreases slightly by 1.5 points to minus 24.4 points in April. While the assessment of the current economic situation in Austria decreases slightly as well, reaching the minus 10.9 points mark, the experts evaluate an improvement in the current economic conditions in the Eurozone compared to the previous month. The respective indicator rises by 5.2 points and reaches minus 23.3 points.

Nearly 70 percent of the financial market experts predict no change in the inflation rate for the CEE-region within the next six months. The respective indicator decreases by 4.5 points to 14.2 points. The indicators representing the inflation expectations for Austria and the Eurozone reach 29.5 points and 41.4 points. Consequently, the polled experts predict higher inflation risks in the Eurozone than in the CEE region for the next six months.

The indicator regarding the expectations of the financial market experts for the monetary policy of the ECB declines by 7.0 points to the 42.9 points threshold. 53.1 percent of the survey participants predict unchanged short-term interest rates in the Eurozone.

According to the majority of financial market experts, the stock market indices for the CEE-region (NTX), for Austria (ATX) and the Eurostoxx 50 will rise within the next six months. The respective indicators remain positive even though the balances decline. The Eurostoxx 50 decreases significantly by 22.0 points reaching the 4.7 points mark. The discrepancy between the Eurostoxx and the NTX (21.4 points) is becoming more significant.

Croatia

The highest increase regarding the economic expectations within the next six months can be observed for Croatia. The respective indicator grows by 3.5 points and reaches the 31.8 points mark. The evaluation of the current economic situation shows nearly no change at a value of minus 36.1 points. 53.3 percent of the participants assess the current economic situation as neutral. The indicator for the development of the stock market index, CROBEX, reaches the highest value in this category, namely 28.0 points.

Poland

The economic expectations for Poland exhibit the strongest decline among all the CEE countries in this category. The respective indicator decreases by 15.0 points to 21.1 points. However, 51.9 percent of the financial market experts prognosticate no change in the economic expectations on a six months time horizon. The assessment of the current economic situation decreases by 7.1 points to 10.0 points yet and still remains the only positive indicator in this category. 49.0 percent of the polled experts predict an appreciation of the Zloty against the Euro within the next six months.

Romania

The economic sentiment indicator for Romania defends its second best position among the analysed CEE countries in April. After a decline by 3.8 points the respective indicator reaches 35.4 points in the current survey. In contrast, the assessment of the current economic situation in Romania remains more critical than in the other analysed CEE countries. Even after an increase by 10.6 points the respective indicator exhibits the lowest balance in country comparison, namely minus 40.5 points.

Slovakia

The economic expectations for Slovakia remain nearly unchanged at 28.0 points in April. The evaluation of the current economic situation in the country improves marginally by 0.7 points reaching minus 18.8 points. 64.6 percent of the participants assess the economic situation in Slovakia as neutral. The indicator for the development of the inflation rate on a six months time horizon reaches 40.9 points which is the highest indicator among the analysed CEE countries in this category. However, the share of experts which foresee an increasing inflation rate and no change in the inflation rate are nearly the same, namely approximately 47.0 percent.

Czech Republic

The economic expectations for the Czech Republic increase by 0.8 points to 32.1 points. The balance reflecting the assessment of the current economic situation for the Czech Republic declines by 1.8 points reaching the minus 6.0 threshold. Accordingly, the Czech Republic achieves the second place in this category among the analysed CEE countries. The expectations regarding the development of the inflation rate in the country shift towards an unchanged inflation on a six month horizon. The majority of the financial market experts foresee an appreciation of the Koruna against the Euro for the next half a year. The respective indicator exhibits the highest value in this category, namely 26.5 points.

Hungary

The economic sentiment indicator for Hungary defends its leading position among the analysed CEE countries in April despite the decrease by 3.0 points to 40.1 points in the current survey. 54.6 percent of the financial market analysts predict an improvement of the business cycle within the next six months. The appraisal of the current economic situation in Hungary improves by 1.5 points to minus 39.6 points. The share of financial market experts who predict a decrease in the inflation rate increases again and reaches 54.0 percent. The relevant indicator obtains minus 44.0 points.

Special Question

The Special Question in April examines the expectations of the financial market experts regarding the imports and exports in the CEE region for 2010. 77.0 percent of the participants predict an increase in exports to Western Europe for 2010. More than half of the surveyed participants also foresee an increase of imports from Western Europe and a boost in trade between the CEE countries. The financial market experts are of the opinion that the Czech Republic will obtain the highest export rate as a percentage of the Gross Domestic Product among the analysed CEE countries. Bulgaria, in contrast, is expected to exhibit the lowest export rate in 2010. According to the polled analysts, the most important determinant for the export activity of a country are the production costs. Furthermore, the financial market experts consider the exchange rates as a crucial factor for the exports as well. In contrast, the survey participants evaluate the impact of interest rates on the export activity as relatively weak.

Survey Procedure and Methodology

The Financial Market Survey CEE is a survey conducted 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 have to evaluate the current business situation, the medium-term prospects of the respective economies, the development of the inflation rate, the short and long-term interest rates, the exchange rates and stock prices for the next six months. The analysts' assessments reflect the qualitative direction of the estimated changes. The CEE region, the Eurozone as well as the Czech Republic, Poland, Hungary, Slovakia, Croatia, Romania and Austria are among the analysed countries.

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

For further information please contact

Dr. Mariela Borell, Phone: +49 (0)621/1235-144, E-Mail: borell@zew.de