ZEW-Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE) - Optimistic Economic Expectations for Central and Eastern Europe

The economic indicator for Central and Eastern Europe (CEE) increases by 7.2 points to 35.2 points in May. According to the financial market experts, the CEE region seems to be only marginally affected by the uncertainty regarding the debt crisis of certain Eurozone countries. The CEE indicator is conducted monthly together with further financial market data by the Centre for European Economic Research (ZEW), Mannheim, with support from the Erste Group Bank, Vienna. It reflects the assessment of the economic expectations for the CEE region on a six months time horizon.

The economic expectations for the Eurozone improve by 2.4 points to the 32.0 points threshold in May. The respective indicator for Austria rises by 5.8 points to the 33.4 points mark. The evaluation of the current economic situation in the CEE region is slightly more positive in May than in the previous month. The respective indicator increases by 1.4 points to minus 23.1 points. The assessment of the current business condition in Austria improves slightly as well, reaching minus 9.4 points this month. In contrast, the evaluation of the current economic situation in the Eurozone declines by 13.7 points to minus 37.0 points.

61.2 percent of the participants are of the opinion that the inflation rates in the CEE countries will stay unchanged in the next half year. On the contrary, around 50 percent of the surveyed experts predict higher inflation risks in Austria and the Eurozone within the next six months.

The expectations concerning the interest rates in the Eurozone remain nearly unchanged. The respective indicator reaches 41.2 points. 51.0 percent of the financial market experts foresee unaltered short-term interest rates in the Eurozone.

The forecasts of the analysts regarding the development of the stock indices for the CEE region (NTX), Austria (ATX) and the Eurostoxx 50 show different patterns for each of the stock indices. While the balances for the Eurostoxx 50 and the ATX rise significantly the balance for the NTX decreases slightly.

Croatia

After a significant increase in the previous month the economic expectations for Croatia decline by 8.5 points to 23.3 points reaching the lowest balance compared to other countries in this category. The appraisal of the current economic situation remains the second month in a row nearly unchanged with a balance of minus 36.3 points.

Poland

The economic expectations for Poland experience a very volatile development in the last two months. After a strong decline in April the respective indicator presents the highest improvement in country comparison with an increase by 15.9 points reaching 37.0 points. The assessment of the current economic situation decreases marginally to the 8.7 points threshold. The respective indicator continues to exhibit the only positive value in this category. 54.1 percent of the surveyed experts predict an appreciation of the polish currency, Zloty, against the Euro within the next six months.

Romania

The economic sentiment indicator for Romania decreases by 8.2 points to 27.2 points in May. The balance reflecting the assessment of the current business conditions declines in the May survey by 7.3 points to minus 47.8 points thus reaching the lowest value in country comparison in this category. 46.2 percent of the financial market experts forecast decreasing short-term interest rates within the next six months. In spite of the current depreciation of the Euro, most of the experts predict a depreciation of the Romanian currency, Lei, against the Euro. The respective indicator drops to the minus 9.5 points mark.

Slovakia

The economic expectations for Slovakia achieve the second highest increase in country comparison in May. The respective indicator gains 10.3 points thus reaching 38.3 points now. The assessemnt of the current economic situation shows the greatest improvement for Slovakia compared to the other CEE countries. The balance increases by 12.4 points to minus 6.4 points. The indicator reflecting the inflation expectations of the participants reaches the 39.2 points threshold. However, the share of experts (47.8 percent) that expect an unchanged inflation rate for the next six months dominates in this month’s survey.

Czech Republic

The economic sentiment indicator for the Czech Republic increases by 8.3 points in May. Therefore the Czech Republic wins the first place in country comparison in this category with a balance of 40.4 points. The balance reflecting the evaluation of the current economic situation of the Czech Republic increases by 1.8 points to the minus 4.2 points mark remaining on the second place in this category. The expectations regarding the development of the interest rates shift towards increasing shortterm interest rates and increasing long-term interest rates. The respective indicator for the short-term interest rates rises by 20.8 points to 42.8 points and the respective indicator for the longterm interest rates increases by 9.2 points to 62.7 points. Both indicators reach the highest values in country comparison. The majority of financial market experts, namely 55.1 percent, expect an appreciation of the Czech currency, Koruna, against the Euro. The relevant indicator wins the first place with a balance of 36.7 points among the analysed CEE countries.

Hungary

The economic expectations for Hungary remain stable at 40.0 points in May. This is the second highest value among the analysed CEE countries in this category. 56.0 percent of the participants predict an improvement of the economic situation in Hungary within the next six months. The assessment of the current business conditions decreases by 3.2 points to minus 42.8 points. The majority of financial market experts anticipate no change in the inflation rate for the next six months.

Special Question

The special question of the May survey analyses the expected development of wages and the income distribution in the CEE region for 2010. 80 percent of the surveyed experts believe that the wages in CEE will increase in this year. 43 percent of the analysts predict a higher increase of wages in the CEE region than in the Eurozone. 22 percent of the participants are of the opinion that a smaller increase in wages is more likely this year. The highest increase in wages is expected in Poland and the lowest increase is expected in Romania. The appraisal of the polled analysts regarding the income distribution in the CEE region results in a clear outcome: 69 percent of the participants perceive the income distribution in the CEE region to be less balanced than in the Eurozone. According to the financial market experts, Romania will experience the highest inequality of income and the Czech Republic will experience the most balanced income distribution.

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

Lena Jaroszek, Phone: +49/621/1235-380, E-mail: jaroszek@zew.de