ZEW-Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE): Economic Recovery in Central and Eastern Europe Slows Down

The economic expectations for Central and Eastern Europe (CEE) decline by 3.2 points in September. The CEE indicator which reflects the assessment of the financial market experts regarding the economic development in the CEE region on a six months time horizon reaches the 17.3 points mark. Nearly half of the survey participants do not predict any change regarding the development of the business cycle for the next half year in the CEE region. These "neutral" answers, however, do not flow into the calculation of the indicator itself. The economic expectations for the CEE region are surveyed monthly together with other financial market data by the Centre for European Economic Research (ZEW) with support of the Erste Group Bank.

The economic expectations for Austria worsen in September by 16.2 points to 13.3 points. The economic expectations for the Eurozone, however, improve slightly this month. The indicator rises by 2.0 points to 17.7 points.

The assessments of the current economic situation in the CEE region, Austria and the Eurozone are more cautious in September compared to the previous survey. The respective indicator for the CEE region decreases by 5.7 points to minus 5.7 points. The assessment of the current economic situation in Austria declines by 6.7 points to 11.1 points. The indicator for the Eurozone worsens by 1.9 points to minus 5.8 points.

Following the financial market experts, the inflationary pressures in the CEE region on a six months time horizon will decline. Thus, the relevant indicator decreases by 7.0 points to 38.8 points. However, higher inflationary risks are prognosticated for the Eurozone. The relevant balance rises by 7.0 points to 44.0 points. The respective inflation indicator for Austria remains nearly unchanged at the 45.5 threshold.

More than half of the financial market experts predict that the stock market indices for the CEE region (NTX), Austria (ATX) and the Eurostoxx 50 will develop positively within the next six months. Even though the balances which reflect the expected development decrease slightly they still remain distinctly positive. The indicator reflecting the expectations of the NTX reaches currently the 36.3 mark.

Croatia

The economic sentiment indicator for Croatia decreases by 6.3 points reaching 18.1 points in September. The evaluation of the current economic situation declines by 2.3 points and reaches minus 27.9 points. The strong optimism of the previous months regarding the development of the Croatian stock indices, CROBEX abates in September. The respective indicator declines by 25.6 points. With its current value of 24.4 points the indicator loses his leading position among all the analysed CEE countries in this category. Croatia also remains in this month’s survey the only country for which the analysts prognosticate a depreciation of the domestic currency. This is indicated by the only negative balance in this category amounting to minus 22.3 points.

Poland

The economic sentiment indicator for Poland decreases in September by 4.5 points. Nonetheless, it still reaches the highest value in country comparison with 22.0 points. The appraisal of the current business cycle also wins the first place among the analysed CEE economies. The respective balance rises by 10.4 points and currently reaches the 34.0 points threshold. The indicator which reflects the prognosis of the experts regarding the development of the short-term interest rates reaches the highest value in country comparison with 41.4 points. This indicates that the survey participants foresee a rise of the interest rates by the Polish National Bank within the next six months. This prediction is in line with the expected higher inflationary risks for Poland. More than 60 percent of the experts are still convinced of an appreciation of the Polish currency against the Euro within the next six months.

Romania

The economic expectations for Romania decrease by 4.8 points in September. The indicator depicts the second highest value in country comparison with 21.3 points. The balance which reflects the assessment of the current economic climate in Romania ceases to take on the last place in this category after an improvement by 9.8 points to minus 43.4 points. Nonetheless, more than half of the analysts still evaluate the current economic situation as negative.

Slovakia

The economic expectations for Slovakia decline in September by 2.6 points to 14.9 points. However, the survey participants judge the current business cycle significantly better then in the previous month. The respective indicator displays the highest climb in country comparison by 10.8 points and therefore reaching 12.8 points. Two thirds of the experts prognosticate increasing inflationary risks in Slovakia on a six months time horizon. The respective indicator increases significantly again and reaches the highest value in this category with 63.9 points. The polled expects predict a lower growth potential for the Slovakian stock indices, SAX, compared to the other analysed CEE countries. The indicator which reflects the development of the SAX for the next half year decreases in September and reaches the lowest value in country comparison.

Czech Republic

The economic sentiment indicator for the Czech Republic decreases in September more strongly than the sentiment indicators of all the other CEE countries. Hence, it loses its leading position in this category. After a decline of 15.3 points the economic expectations reach a value of 16.7 points. The appraisal of the current economic situation in the Czech Republic increases by 6.6 points to 20.4 points. This is the second highest value among the analysed CEE countries in the category. The indicator which reflects the expected inflationary risks continues to rise in the current survey and reaches 58.3 points. More than 60 percent of the financial market experts predict higher inflationary pressures in the Czech Republic on a six months time horizon.

Hungary

The economic expectations for Hungary worsen in September by 10.4 points to 13.1 points. The current business cycle is also evaluated more critically than in the previous month. The indicator which reflects the inflation expectations of the financial market experts increases significantly for the second time in a row. The respective indicator climbs by 17.0 points to 23.1 points.

Special Question

The Special Question in September deals with the economic impact and the chances of success of shopping malls in the CEE region. 39 percent of the survey participants are of the opinion that shopping malls can significantly encourage consumption. However, with 51 percent, the majority of financial market experts are of the opinion that the shopping malls will not positively influence consumption. A lack of planning and supervision led to chaotic developments and an excessive supply of shopping malls in the CEE region. Hence, 58 percent of the surveyed analysts presume that many shopping centres will not persist. Nonetheless, if the shopping centres additionally provide entertainment and fitness services aside shopping opportunities they have a good chance of surviving the recession. This statement found consent within nearly 70 percent of the experts. 59 percent of the survey participants are convinced that the shopping malls will be more successful in the CEE region than in the Eurozone.

Survey Procedure and Methodology

The Financial Market Survey CEE is a survey carried out among financial market experts by the Centre for European Economic Research in Mannheim (ZEW) and the Erste Group Bank AG Vienna. The target of this survey is to develop indicators describing the economic conditions in Central and Eastern Europe (CEE) as well as in Austria. The CEE region observed in the survey consists of Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia and Slovenia. The financial experts are questioned on their evaluations of the current business situation, the medium-term prospects of the respective economies and their expectations as to the development of the inflation rate, the short- and long-term interest rates, the exchange rates and stock prices on a six month time horizon. The analysts' assessments reflect the qualitative direction of the estimated changes.

Among the analysed economies are the CEE region, the Eurozone as well as the Czech Republic, Poland, Hungary, Slovakia, Croatia, Romania and Austria. The monthly "Financial Market Report CEE" contains the results for every Central and Eastern European country in detail.

For further information please contact

Dr. Mariela Borell, Phone: +49 (0)621/1235-144, E-mail: borell@zew.de