ZEW-Erste Bank Sentiment Indicator for Central and Eastern Europe - Mostly Positive Assessment of the Current Economic Situation in Central and Eastern Europe; Outlook for the Next Six Months Remains Cautious for the Time Being

The economic expectations of the financial market experts improve for the Czech Republic, Romania, Slovakia and Croatia in June. The outlook for the whole region Central and Eastern Europe (CEE) remains cautious for the time being, just like in the previous month. According to the current survey the CEE indicator, which is calculated monthly by the Centre for European Economic Research (ZEW) in Mannheim supported by the Erste Bank der Oesterreichischen Sparkassen AG in Vienna, as the balance of the positive and negative expectations for the economic development in the CEE region for a time period of six months, has declined by 4.6 points and now stands at minus 28.7 points. However, a large proportion of financial market experts (42.9 percent) expect no change in the economic situation of the region. The current situation in the CEE region is still assessed as positive - despite a minor decline in June - with a balance of 34.5 points.

The experts’ expectations for the Austrian economy show similarities to their assessment of the CEE region. The sentiment indicator for Austria recedes marginally by 2.2 points to minus 30.8 points. The current economic situation is still assessed as positive after a decline of 4.1 points.

The proportion of experts who anticipate a deterioration of the economic situation in the Eurozone decreases in June. Thus, the sentiment indicator achieves an improvement by 8.5 points to minus 36.3 points in this month.

While the participants’ economic expectations for almost all surveyed CEE countries were rather reserved in May, the prospects improve for some countries in June. In the current survey the sentiment indicator for the Czech Republic increases by 6.9 points to minus 32.1 points. The expectations for Romania, Slovakia and Croatia improve by 4.2 points, 3.7 points, and 0.8 points, respectively. In contrast to this, the expectations for the Hungarian and the Polish economies worsen by 1.4 points and 3.4 points, respectively.

The assessment of the current economic situation remains positive for most countries. After a decline of 16.6 points, Slovakia reaches a balance of 46.4 points. Thus, it loses its leading position and is outpaced by the Czech Republic (53.6 points) and Poland (50.0 points). The financial market experts have taken somewhat critical stance in their evaluation of the situation in Hungary, which discloses a balance of minus 33.4 points (1.2 points less than in the previous month).

The expectations of the financial market experts regarding the inflation rates in Central and Eastern Europe have undergone a fundamental change in June. The inflation expectations point to an increase in prices for almost all of the analysed countries. For the CEE region 38.2 percent of the analysts anticipate a higher inflation rate for the next six months. Another 38.2 percent expect an unchanged inflation rate, while 23.6 percent anticipate a decreasing inflation rate. The balance rises by 17.9 points to 14.6 points.

Furthermore, a growing number of experts now expect increasing inflation rates for Austria, Poland and Romania as well, so that the balances have changed from negative to positive values. The survey participants believe that inflation risks can be curbed merely in Hungary and the Czech Republic. Despite an increase, the corresponding balances remain negative.

The financial experts perceive the increase of the inflation risk to be the highest in the Eurozone. The corresponding balance rises by 26.9 points to 17.0 points. Due to the expected increase of the interest rate by the ECB in July, the balance for the short-term interest rates in the Eurozone increases by 41.7 to 3.8 points.

Since the inflation risk in Slovakia before joining the Euro is regarded as relatively high, with a balance of 17.5 points, experts expect the National Bank of Slovakia to counteract it with a restrictive monetary policy. According to this the balance of the short-term interest rate increases by 40.6 points to 4.5 points.

The expectations of the financial market experts for the development of the stock markets in the CEE countries remain positive in spite of decreasing balances. Approximately half of the survey participants predict a rise of stock market indices for almost all of the analysed countries in the following six months. The balance for the Austrian index (ATX) is in June with a value of 36.0 points characterised by the strongest optimism among the analysed stock market indices.

The participants’ expectations for the exchange rates have not undergone any significant changes in the current survey. An appreciation of the currencies compared to the euro is continued to be anticipated for all countries with the exception of the Czech Republic.

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