ZEW/Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE) - Economic Expectations for Central and Eastern Europe Turn Positive Again

The financial experts’ business outlook for Central and Eastern Europe (CEE) improves by 9.9 points in May. Currently standing at 6.0 points, the ZEW/Erste Group Bank sentiment indicator CEE has turned positive for the first time since September 2007.

As to Austria, the analysts’ prediction is more optimistic, compared to the previous month, as well. The indicator covering the assessment of Austria’s economic development for the next six months increases in the May survey by 6.6 to 12.6 points. However, the sentiment indicator for the Eurozone notes the most distinct recovery, rising by 31.0 to 13.1 points at present.

The experts' valuations of the current economic situation in the CEE region as well as in Austria have worsened this month. The respective indicator for the CEE area declines by 6.4 to minus 60.4 points. The balance capturing the appraisal of the present state of the Austrian economy recedes by 21.8 to minus 48.9 points. By opposition, the rating of the current economic situation in the Eurozone stabilises compared to the April survey, the associated indicator increasing by 0.7 to minus 66.0 points.

The analysts' inflation forecast for the CEE region and Austria remains nearly unchanged in May. The corresponding indicators rest nearly unaltered at minus 44.0 and minus 44.6 points respectively. The majority of the respondents still reckon with falling inflation rates. In contrast, the expectations for the Eurozone predominantly shift from declining to constant rates of price increases.

Against the background of the recent prime rate cut to one percent in the Eurozone, the share of respondents assuming a further interest rate reduction on a six month horizon has dropped considerably. The respective balance now stands at minus 47.0 points instead of 65.9 points so far.

In spite of having worsened in May, the anticipated development of the stock market indices for the CEE region (NTX) and Austria (ATX) as well as of the Eurostoxx 50 for the coming half year remains predominantly positive.

The outcomes of this month’s survey for the individual CEE countries are characterised by optimistic assessments of the financial experts with regard to the economic development on a six month horizon. All sentiment indicators are located in the positive range again. However, the current survey reflects the analysts’ scepticism on the present business conditions in the individual CEE countries, as well.

Croatia

The analysts’ economic expectations for Croatia on a six month time horizon worsen slightly by 1.5 to 12.5 points. Thus, Croatia constitutes an exception among the examined CEE countries. Compared to last month’s results, the current business conditions are evaluated slightly more critically, too. The respective indicator drops 2.3 to minus 42.8 points. With respect to the anticipated development on the stock markets, the experts’ appraisal for Croatia notes the most vigorous downward movement. The appendent balance recedes by 20.6 points, but remains positive, nonetheless, standing at 12.1 points. The indicator reflecting the analysts’ forecast concerning the exchange rate of the Croatian Kuna versus the Euro remains unchanged at 16.7 points. Accordingly, the questioned financial experts count on a depreciation of the Kuna over the coming six months.

Poland

The business expectations for Poland change for the better in May, increasing by 21.8 to 20.0 points. Among the regarded economies Poland is characterised by the largest share of financial experts holding an optimistic view with respect to the cyclical trend on a six month time horizon. 60 percent of the survey participants, however, are doubtful about the current economic circumstances, considering them to be “bad”. The associated indicator declines by 18.4 to minus 48.0 points. A growing majority of the respondents anticipate an upwards revaluation of the Polish Zloty versus the Euro within the next half year.

Romania

The indicator capturing the financial experts’ business forecast for Romania turns positive again in May, climbing 26.1 points to currently 11.7 points. As opposed to this, the assessment of the present economic situation remains highly negative, the respective balance closing at minus 69.2 points. The analysts’ expectations with regard to the stock market index BET recede by 18.9 points, but remain positive, nonetheless, reaching 10.9 points.

Slovakia

The business outlook for the Slovakian economy ameliorates by 19.5 points to 11.8 points at present. However, nearly 70 percent of the survey participants are pessimistic about the current economic conditions. The corresponding indicator loses 31.3 to minus 57.2 points.

The respondents’ prognosis on the development of the Slovak stock market index SAX is in the mid-range among the evaluations for all stock market indices, the associated balance standing at 21.9 points.

Czech Republic

Similar to the outcomes of the previous month, the Czech Republic features the brightest economic prospects on a six month time horizon within the country comparison. The financial experts’ business forecast improves by 18.6 to 24.1 points in May. In contrast, the balance reflecting the valuations of the current circumstances registers the sharpest decline compared to the assessments for all other analysed economies, losing 32.1 to minus 52.8 points. The analysts attach the most favourable future potential to the Czech stock market index PX50. The corresponding indicator achieves with 28.0 points the highest value among the analysed CEE indicators.

Hungary

The financial experts’ appraisal concerning the cyclical trend of the Hungarian economy improves significantly in May. The respective indicator gains 20.9 points, reaching 15.3 points. Still, the respondents take a critical stance towards the current business conditions in Hungary. The corresponding balance decreases by 5.7 to minus 71.7 points, which is the lowest value in this category among all analysed countries. Nearly 80 percent of the analysts expect the Hungarian National Bank to cut its prime rate within the coming half year.

Special question

This month’s special question deals with the monetary policy of the central banks in the CEE area, the Eurozone and the USA as well as with fiscal measures in the mentioned regions. The financial experts particularly assess the effectivity of these instruments regarding the liquidity situation of banks during the crisis and a stimulation of the economy. Furthermore, potential inflation risks take center stage.

Approximately two third of the analysts are convinced that an extension of eligible collateral and open market operations of longer majurities are most suitable to foster lending. According to the survey participants, monetary instruments are more appropriate to reviving the economy than fiscal ones. Still, the top rating "very efficient" has been attributed to fiscal policy means slightly more often.

Moreover, the questioned financial experts believe that both policies will prove to be more efficient in the Eurozone and the USA than in the CEE region. At the same time the majority of the respondents share the view that the inflation risk is lower within the CEE economies compared to the Eurozone and the USA.

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.

Contact

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