ZEW-Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE) - Inclusion of Turkey into the ZEW-Erste Group Bank Indicator for Central and Eastern Europe

Since October, the ZEW-Erste Group survey for Central and Eastern Europe (CEE region) has expanded by the inclusion of Turkey. Thus, the analyzed CEE region comprises one additional country and the assessment of the financial market experts from Turkey is incorporated in the calculation of all indicators. Furthermore, separate indicators are formed for Turkey. Due to these changes a direct comparison of the current results with the results from the previous months is not entirely possible.

The Economic Sentiment Indicator for CEE which reflects the assessment of the financial market experts regarding the economic development in the CEE region, including Turkey, on a six month time horizon, denotes a value of 19.3 points in October. The economic expectations for the CEE region without Turkey and without the answers of the new participants reached 17.3 in the previous month.

The economic expectations for the CEE region are surveyed monthly together with other financial market data by the Centre for European Economic Research (ZEW) with the support of the Erste Group Bank, Vienna.

The Economic Sentiment Indicators for Austria and the Eurozone reach 7.0 points and 2.1 points in October. Compared to the results from the previous month these values would indicate a decline by 6.3 points and by 15.6 points. Nonetheless, without the consideration of the survey participants from Turkey the economic expectations for Austria would demonstrate a slight improvement and the decline of the indicator for the Eurozone would be significantly smaller.

The indicator which reflects the evaluation of the current economic situation in the CEE region including Turkey reaches 3.2 points. 86 percent of the surveyed analysts evaluate the current situation in the CEE region as neutral. The indicators which reflect the appraisal of the current business cycle in Austria reaches 7.3 points in October. The respective balance for the Eurozone reaches the minus 15.1 points mark. These assessments also include the expectations of the experts from Turkey.

Through the inclusion of Turkey into the survey lower inflationary pressures are evaluated for the CEE region on a six months time horizon than in the previous month. The respective indicator decreases by 19.8 points to 19.0 points. For Austria and the Eurozone the experts (including Turkish analysts) prognosticate significantly lower inflationary risks in October as well. The two respective balances reach 22.5 points and 21.3 points.

The majority of financial market experts expect no significant change for the stock market indices within the next six months for the CEE region (NTX), Austria (ATX) and the Eurostoxx 50. The balance which depicts the development of the NTX demonstrates a value of 21.2 points. 53.8 percent of the experts predict an unchanged index level for the next six months.

Turkey

The economic sentiment indicator for Turkey starts with a value of 20.9 points. This poses the highest value in this category in country comparison. While 36.5 percent of the financial market experts foresee an improvement 15.6 percent predict a deterioration of the economy within the next six months. The indicator which reflects the evaluation of the current economic conditions in Turkey reaches 45.9 points in October. This is also by far the best value in this category in country comparison. Nearly half of the experts evaluate the situation in the country as good. When only considering the answers of the Turkish participants, 81.1 percent appraise the current situation in Turkey as good. None of the Turkish participants regard the current situation in Turkey critical.

According to the opinion of the financial market experts, the inflations risks in Turkey are marginal for the next half year as the respective indicator reaches only 1.1 points. The answers of unchanging interest rates dominate regarding the question about the development of short term and long term interest rates.

The stock market in Turkey will develop positively for the next half year according to the expectations of 48.8 percent of the survey participants. The respective indicator denotes the highest value in this category with a value of 30.6 points in country comparison.

The indicator which indicates the expectations regarding the development of the Turkish Lira against the Euro demonstrates a value of 14.3 points. The positive level indicates an expected appreciation of the Turkish currency by the majority of survey participants.

Croatia

The economic expectations for Croatia reach 7.4 points in October. The balance which represents the evaluation of the current economic situation in the country depicts a value of minus 17.2 points.

Poland

The economic sentiment indicator for Poland reaches 15.4 points in October. The indicator which reflects the appraisal of the current economic conditions in Poland reaches 12.4 points.

Romania

The economic sentiment indicator for Romania reaches 14.0 points in October. The balance which represents the evaluation of the current economic situation in Romania reaches minus 26.2 points and is therefore the lowest value in this category.

Slovakia

The economic expectations for Slovakia exhibit a value of 11.5 points. The assessment of the current economic situation in the country amounts to minus 1.2 points.

Czech Republic

The economic sentiment indicator for the Czech Republic reaches a value of 10.2 points. The appraisal of the current business cycle denotes a value of 11.7 points.

Hungary

The economic expectations of Hungary exhibit a value of 16.5 points which is the second best value in this category after Turkey. However, the indicator which reflects the assessment of the current economic situation drops to the last place in country comparison with a value of minus 31.4 points.

Special Question

The Special Question in October raises the question regarding the development of the CEE currencies against the Euro by the end of 2011. Furthermore, the experts are surveyed concerning the influence of several factors on their currency expectations. According to the evaluation of the survey participants, the Polish and the Czech currency have the best chances for an appreciation against the Euro. 61 percent and 58 percent of the surveyed analysts prognosticate an appreciation of the Zloty and the Koruna against the Euro in the upcoming year. Regarding the Turkish currency, 48 percent of the survey participants expect an appreciation and 31 percent predict depreciation against the Euro. The investment sentiment is declared as the most important factor to influence the expected development of the currencies. For all the analysed currencies, more than half of the survey participants evaluate currency controls and exchange rate regimes as inappropriate. Through both measures exchange rate stability could be assured, however, the movements of the exchange rates which represent among others differences in the business cycle and the monetary policy of the countries would be disabled. For the Turkish Lira, 61 percent of the experts find the two measures as inappropriate while 39 percent evaluate them as appropriate.

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, Slovenia and since October 2010 also Turkey.

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 Austria, the Czech Republic, Poland, Hungary, Slovakia, Croatia, Romania and since October 2010 Turkey.

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