ZEW-Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE)- Economic expectations for Central and Eastern Europe slightly decline

The economic expectations of the financial experts for Central and Eastern Europe recede slightly by 3.4 points in November, reaching minus 54.5 points.

Most of the CEE countries are only marginally affected by the financial crisis and the economic momentum in most CEE economies does not lose much steam so far. Nevertheless, the majority of the questioned experts (65.9 percent) are not persuaded that the competitive advantages of the fast-growing CEE countries will obviate the transmission of the impending economic slowdown from the Eurozone and anticipate also a decelerating economic development in the CEE region.

However, 11.4 percent of the analysts participating in the monthly survey, which is carried out by the Centre for European Economic Research (ZEW), Mannheim, supported by the Erste Group Bank AG, Vienna, spot a positive future potential for the region within the coming half year. 22.7 percent anticipate unchanged economic conditions for the CEE region as a whole.

Unlike the CEE indicator, the experts’ forecast for the economic development of the Eurozone improves again slightly, gaining 3.7 points to currently minus 53.1 points. The rescue plans for the financial sector, government stimulus packages in several countries and interest rate cuts by many central banks seem to have a slight positive impact, compared to the previous month, on the analysts’ confidence in the economic development of the Eurozone.

The sentiment indicator for Austria rises marginally by 3.6 to minus 38.4 points, too.

By contrast, Rumania is characterised by the sharpest decline of the economic expectations in November. The sentiment indicator drops by 35.2 points to currently minus 62.0 points.

The corresponding indicator for Hungary loses 24.4 points and reaches the minus 50.0 points mark in November. The financial experts are little convinced by the 20 billion Euro financial aid, which the IMF, the EU and the World Bank granted to the state.

All balances capturing the assessment of the current economic situation change for the worse and turn negative in November. The indicator for the CEE region drops by 32.2 points to minus 23.0 points. The experts’ view on the state of the Hungarian economy changes most significantly. The respective indicator loses 40.2 points to minus 65.9 points. With regard to the momentous conditions in the Czech Republic, the analysts are least sceptical, as the corresponding balance now stands at minus 4.7 points.

Despite the ECB having cut its prime interest rate for the Eurozone on the occasion of an extraordinary session in October and again in its regular meeting on monetary policy in early November to currently 3.25 percent, 80.0 percent of the respondents anticipate a further downward adjustment.

Against the background of a looming economic slowdown and an already decreased risk of inflation, the easing of the ECB monetary policy was possible and urgently needed.

Moreover, the analysts’ inflation forecasts suggest a further moderation of the price risks within the coming six months in the Eurozone, the CEE countries as well as in the CEE region as a whole. All corresponding balances are highly negative, as about 80 percent of the experts anticipate falling inflation rates in the analysed economies.

With respect to the short-term interest rates in the CEE countries, the financial experts’ assessments predominantly tend towards a decline. This holds in particular for the Czech Republic and Poland, where more than 65.0 percent of the respondents anticipate falling interest rates. The corresponding balances close at minus 55.0 and minus 50.0 points respectively.

Due to the raise of the Hungarian prime rate by 3 percentage points to 11.5 percent in late October, slightly fewer experts than in the previous month reckon on falling interest rates. Nonetheless, they still form 60.0 percent of the respondents (compared to 76.9 percent in October).

Although declining in November, the participants’ expectations concerning the development on the CEE stock markets remain predominantly positive. In line with the slight improvement of the business prospects for the Eurozone, the assessments for the development of the Euro Stoxx 50 within the next six months are characterised by cautious optimism.

While the forecasts for the Croatian stock index CROBEX and the Austrian stock index ATX have changed least compared to the previous month, successfully defending their leading positions with ratings of 40.0 and 37.5 points respectively, the corresponding balances for the Slovak SAX and the Rumanian BET lose 27.0 and 25.0 points. Fewer and fewer experts trust in the potential for success of these two stock indices and, by consequence, the indicators drop to 14.2 and 8.4 points respectively.

In November, the expectations of the financial experts with regard to the exchange rate are very heterogeneous again. The forecasts for the Rumanian Leu notice the largest change compared to the results in October, indicating the high sensibility of the exchange rate versus the Euro due to a pronounced share of foreign currency credits within the country. After a decline of the balance by 31.2 to minus 31.2 points, the proportion of the analysts anticipating a depreciation of the Rumanian currency towards the Euro prevails this month.

With respect to Hungary, the experts’ assessments shift slightly towards an appreciation of the Forint against the background of the recent prime rate hike. The corresponding indicator now stands at minus 4.7 points.

The financial experts' forecasts concerning the export activity of the CEE countries in 2009 were analysed within the scope of this month’s special question. It became apparent that 73 percent of the respondents count on declining exports to Western Europe. In particular the automotive industry is expected to export less next year, followed by the machinery and metal branches.

Survey Procedure

The Financial Market Survey CEE is a survey carried out by ZEW Mannheim and Erste Group Bank 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.

For further information please contact

Dr. Mariela Borell, Phone: +49/621/1235-144, E-mail: borell@zew.de