ZEW/Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE) - Economic Outlook for Central and Eastern Europe Strengthens

The optimism for the economic development in Central and Eastern Europe (CEE) strengthens in June. The ZEW/Erste Group Bank sentiment indicator for the CEE region has risen by 14.4 points to 20.4 points. The CEE indicator is calculated monthly by the Centre for European Economic Research (ZEW), Mannheim, with support from the Erste Group Bank, Vienna.

The economic sentiment indicator for Austria has fallen slightly in the June survey; however, it remains clearly positive at 10.0 points. The sentiment indicator for the Eurozone has risen by 3.6 points and now stands at 16.7 points.

The current economic environment is, however, assessed more cautiously by the surveyed experts. The corresponding indicator for the CEE region dropped slightly by 0.9 points to minus 61.3 points in June. The corresponding indicators for Austria and the Eurozone have improved clearly by 22.6 and 10.8 points, respectively. However, they remain negative at minus 26.3 and minus 55.2 points, respectively.

The experts polled expect a growing inflation risk to accompany the cyclical recovery in the CEE region. Despite this, the majority of survey participants foresee a declining inflation rate in the CEE region. This indicator has risen 30.7 points and now stands at minus 13.3 points in June. Similar developments are expected in Austria and the Eurozone: the numbers have clearly risen, but remain slightly negative.

The financial market experts have clearly changed their short-term interest rate expectations in June. This indicator has gained 36.4 points and now stands at minus 10.6 points. 63.8 percent of the survey participants hold the opinion that the ECB base rate will remain at a constant level in the next six months.

The analysts’ expectations for the stock market in the next six months have improved in the current survey. The indicators for the stock index NTX in the CEE region, for the Austrian ATX, and for the Eurostoxx 50 have climbed to levels over 30 points.

Although the economic expectations for the CEE region in general have improved in June, the forecasts for the individual CEE countries have worsened. However, the indicators remain positive in most countries.

Croatia

47.6 percent of the analysts polled foresee no changes in the economic situation in Croatia for the next six months. The cyclical indicator dropped slightly by 7.7 points, but remains positive at 4.8 points. The current economic environment, however, is assessed more critically. This measure fell 13.6 points to minus 56.4 points.

In contrast to the more restrained forecasts from last month, in the current survey, the experts’ evaluation with respect to the Croatian stock market has improved most considerably. This indicator has risen by 21.3 points to 33.4 points, the strongest upward development this month.

The analysts’ expectations with regards to the exchange rate between the Euro and the Croatian Kuna predict a depreciation of the Kuna in the next six months. Croatia is the only country whose currency is expected to weaken.

Poland

The economic expectations for Poland have worsened in June by 9.2 points and now stand at 10.8 points. Analogously to the rest of the CEE countries, the forecasts shift in the direction of constant economic conditions until the end of the year. The evaluation of the current economic situation has improved by 9.9 points to minus 38.1 points.

The exchange rate expectations for the Polish Zloty compared to the Euro remain positive. 59.1 percent of the analysts expect an appreciation of the Zloty in the next half year.

Romania

The positive trend of the economic sentiment indicator for Romania from May has not carried forward into June. The indicator dropped by 13.9 points, where it now stands with minus 2.2 points in the negative area. With 43.8 percent, the majority of survey participants expect an unchanged economic environment in Romania. Furthermore, the current economic situation in Romania is evaluated critically. The corresponding indicator has risen slightly by 1.1 points and now stands at minus 68.1 points.

In terms of exchange rate development, no unified picture has emerged from the results of the June survey.

Slovakia

The economic forecast for Slovakia remains nearly unchanged in June. The respective indicator has fallen slightly by 1.2 points to 10.6 points. However, the evaluation of the current situation has improved. The corresponding indicator has climbed 7.2 points and now stands at minus 50.0 points. The Slovakian stock index SAX is expected to grow, but this expectation is shared by less experts than in the other countries.

Czech Republic

Notwithstanding the 5.0 point decrease to 19.1 points, the Czech economic sentiment indicator defends its leading position in comparison with other CEE countries. The Czech Republic is the only country in which positive expectations outweigh the neutral. The measure that reflects the evaluation of the current economic situation has climbed in June by 8.3 points to minus 44.5 points.

The experts award the Czech currency the highest appreciation potential in comparison with the Euro. This measure has grown by 11.4 points and now reaches, with 36.9 points, the highest value among the exchange rate forecasts analysed.

Hungary

In the current survey, the economic expectations for Hungary have fallen by 19.7 points after increasing markedly in May. With a current value of minus 4.4 points, the economic development potential for the next six months is judged most critically in Hungary. Nonetheless, the majority of financial experts foresee an unchanged economic situation in the next six months. The current economic environment, like in the last month, is evaluated predominantly negatively. The corresponding indicator dropped by 6.1 points and now stands at minus 77.8 points, the lowest value in this category among all the countries analysed again.

In contrast to the cyclical expectations, the analysts’ forecasts for the Hungarian stock market have improved. The measure for the stock index BUX has increased by 9.8 points to the 31.8 points mark.

Special Question

The special question in June deals with the recently promised financial support for beleaguered small and medium-sized firms in the CEE region from the World Bank, the European Investment Bank, and the European Bank for Reconstruction and Development.

75 percent of the surveyed experts speak out in favour of the current endeavour of the largest international financial institutions, 23 percent are neutral, and 2 percent disapprove the aid.

The extension of credit lines and granting of new credit are evaluated as especially important. In contrast, the experts consider the strengthening of equity for corporations to be less relevant. Beyond that, 69 percent of the survey participants expect problems with the identification of particularly needy firms.

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