ZEW-Erste Bank Sentiment Indicator for Central and Eastern Europe: GDP Growth of 5 Percent Expected for CEE Region in 2008 and 2009. Positive Assessment of the Current Economic Situation; Economic Expectations for the First Half of 2008 Slightly Declining

The monthly survey among financial experts conducted by the Centre for European Economic Research (ZEW), Mannheim, and supported by Erste Bank der oesterreichischen Sparkassen, Vienna, recorded slightly lower expectations for the Central and Eastern European (CEE) region’s economy in January. The CEE indicator, calculated as the balance of positive and negative assessments of the economic outlook over the next six months, fell by 6.3 points to -29.0 points.

More than half of the survey participants do not expect a change of business activity in the region. The proportion of financial experts who are pessimistic about the economic outlook gained five percent and resulted in a slight drop of the indicator. The expectations of the analysts concerning the year end 2008 and the year 2009 are more optimistic, however. Within the special question in January they forecast a gross domestic product (GDP) growth for the CEE region of nearly 5 percent for 2008 and 2009.

The experts assess the current situation of the CEE countries as increasingly positive. The balance rose by 4.7 points and reaches 37.9 points in January. The fraction of participants who judge the current situation as acceptable dropped in favour of those who judge the situation as good.

Concerning Austria the survey results developed in just the opposite way. While economic expectations for the upcoming months have improved, the assessment of the current situation has moderately declined. The respective indicator balances of Austria and the CEE countries thus move toward each other. The sentiment indicator for Austria lies at -30.1 points and the balance for the current situation at 43.4 points. In both cases the majority of experts chose "neutral" as their answer.

The January survey stands out for its predominantly positive rating of the current situation of the CEE countries. While the experts evaluate Slovakia, the Czech Republic, Poland and Croatia positively, Hungary and Romania receive a rather weak score. Slovakia distinguishes itself with a balance of 62.3 points, +8.4 points compared to last month.

Despite this, the expectations for the next six months are restrained. All of the balances for the CEE countries are negative. Still for most countries the majority of the financial experts does not expect a change of business activity.

Just like in the December survey, the financial experts predict rising inflation rates in the upcoming six months for all countries except Hungary. The respective balances fell, but remain on a high level. According to the participants, the highest risk of inflation exists in the Czech Republic, Slovakia and Poland. The lowest risk is being attributed to Hungary. The balance for the CEE region fell most pronouncedly by 16.4 points to 47.6 points. The balance for Austria was the only one to rise in January (+8.2 points to 53.8 points).

Concerning long and short term interest rates, fewer financial experts predict a rise. For the first time they forecast a cut of the three-month-interbank rate in the Eurozone. The corresponding balance fell by 20.6 points to -18.6 points. Nevertheless 57.6 percent of the participants do not expect a change in the interest rate. The lowest balance can be found in Hungary, where 71.4 percent of the respondents consider an interest rate cut likely.

The expectations for the development of the stock markets sagged in January. All balances with the exception of the Croatian CROBEX are negative. The balances for the ATX and NTX dropped by 19.0 points and 13.9 points respectively to -4.0 points and -7.3 points.

January's special question deals with the experts' expectations concerning the growth of GDP and inflation rate in 2008 and 2009 in the CEE region, the EU and the United States. For 2008 the financial experts expect an average GDP growth of 2.19 percent in the EU and 1.85 percent in the USA. For 2009 a more positive outlook is cast. They predict a GDP growth of 2.37 percent in the EU and 2.40 percent in the USA. For the CEE region they anticipate a growth rate of 4.89 percent in 2008 and 4.97 percent in 2009. According to the survey, inflation rates in 2009 will be below those of 2008. The experts forecast the average rate of price increases to fall from 4.59 percent in 2008 to 4.05 percent in 2009, in the EU from 2.73 percent to 2.39 percent, and in the United States from 3.18 percent to 2.85 percent.

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