ZEW-Erste Group Bank Sentiment Indicator for Central and Eastern Europe - Slightly Improved Prospects for the Economic Development in Central and Eastern Europe

The economic expectations for Central and Eastern Europe (CEE) improve slightly once again in September. In the current survey, the ZEW-Erste Group Bank Sentiment Indicator CEE that shows the balance of positive and negative assessments of the economic outlook within the next six months, increases by 0.7 points to currently minus 30.6 points. A growing majority of financial market experts (61.2 percent) forecasts an unchanged development of the business cycle in the CEE region within the next six months.

For Austria, the balance for the economic expectations declines by 7.9 points to minus 36.5 points. The future prospects for the Eurozone worsen significantly. The respective balance declines by 21.6 points to minus 62.0 points in September.

In contrast to the August survey the economic expectations for Poland and Slovakia brighten up in September and the outlook for Croatia recovers considerably. For the Czech Republic the survey participants expect a worsening economic development within the next six months. Despite the negative values of the sentiment indicators of all mentioned countries clear majorities of the respondents anticipate unchanged business activities. In line with the results of the previous months, Hungary remains the only country featuring a predominantly positive business outlook.

The share of financial market experts who assess the current economic situation in the CEE countries as “good” increases significantly in the current survey. The balance for the CEE region climbs by 19.4 points to 36.0 points. The balances for Poland and Slovakia grow markedly by 22.8 points and 20.6 points to currently 53.2 points and 63.1 points. In contrast, the balance for the current economic situation in Austria decreases by 5.4 points to 9.3 points. The indicator for the current economic situation for the Eurozone loses 5.7 points to minus 12.0 points. Nevertheless, more than 70.0 percent of the respondents consider the economic conditions in Austria and the Eurozone to be "normal."

The inflation risks in the CEE region are evaluated to be lower compared to the survey results in August, mainly due to the declining oil price. In all analysed CEE countries the financial market experts anticipate falling inflation rates and consequently all balances drop in the current survey. The corresponding balance for the CEE-region as a whole decreases by 7.0 points to minus 59.1 points. The indicator for Austria drops marginally to minus 46.5 points. The balance for the Eurozone is the only one that increases in September but remains negative at minus 45.1 points.

The expectations of the survey participants for the stock market indices in the CEE region have not changed considerably in September and remain optimistic.

The special question in September deals with the prices for real estates in the CEE region. Within the first part of the question, the financial market experts were asked to rank potential demand drivers according to their respective significance for the rise in prices on the CEE real estate markets, differentiating between commercial and residential properties. 62.0 percent of the experts consider the impact of the strong economic conditions on the prices for commercial real estate to be "high". An overwhelming majority of the participants (82.0 percent) consider the positive income development in Central and Eastern Europe to be the main trigger for the rising demand for private real estates. Additionally, we were interested in the experts’ view on the current price level at the CEE property markets and the forecasts within the next five years. With regard to the commercial properties, most experts (63.0 percent) evaluate the current prices as appropriate. As to residential real estate, the majority of the experts (37.0 percent) believe that they are overvalued. In spite of perceiving an overvaluation at the CEE real estate markets, a clear majority of the respondents expect further price hikes for housing in the long-run (five years), whereas in the case of office space the proportion of the expects anticipating no price change slightly prevails.

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