ZEW/Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE) - Recovery of the economic expectations for the CEE area continues

The economic outlook for Central and Eastern Europe (CEE) keeps on recovering in April 2009. The CEE sentiment indicator, reflecting the surveyed analysts’ economic expectations on a six month time horizon rises in the current survey by 28.8 points to minus 3.9 points. Hence, in accordance to the positive development of other indicators, the recovery prospects of the analysed CEE countries improve. Nonetheless, more than 45 percent of the questioned financial experts forecast no significant change of the business cycle in the region. The CEE indicator is captured monthly by the Centre for European Economic Research (ZEW), Mannheim, supported by the Erste Group Bank AG, Vienna.

With respect to Austria, the survey participants show more optimism, too. The wage and income tax reform which was introduced in March in the context of an economic stimulus package seems to have influenced the respondents’ assessments regarding the country’s business prospects in a distinctly favourable way. Turning positive, the corresponding indicator gains 24.7 points in April and reaches 6.0 points.

The economic expectations for the Eurozone improve least in the current survey. The associated balance increases by 7.2 points to minus 17.9 points. Thus, the Eurozone achieves the lowest value among all analysed economic sentiment indicators.

The balance reflecting the current business conditions in the CEE region mounts 3.4 points to minus 54.0 points in April. The respective indicator for Austria rises by 8.4 points to minus 27.1 points. More than 50 percent of the financial experts take a neutral stance upon the present state of the Austrian economy. In contrast, the assessment of the current economic situation in the Eurozone worsens slightly by 1.9 points to minus 66.7 points.

As in the previous months, the participants’ inflationary expectations predominantly suggest falling inflation rates for the CEE region and the Eurozone. More than 70 percent of the surveyed financial experts expect the European Central Bank to further cut interest rates in the Eurozone in the coming half year.

The analysts’ view on the future development of the stock market indices for the CEE region (NTX) and Austria (ATX) as well as for the Eurostoxx 50 is predominantly positive on a six month horizon. Consequently, all three balances gain in value in April.

The optimistic mood of the financial experts with regard to the CEE region as a whole, which can be observed within the present survey, applies to the individual countries, as well.

Croatia

The economic sentiment indicator for Croatia mounts 28.9 to 14.0 points. Thus, it reaches – as already seen in the previous month – the best value among all analysed countries. The current business conditions in Croatia are evaluated more positively, too. The associated balance increases by 9.5 to minus 40.5 points. More than 55 percent of the analysts characterise the current economic situation as normal.

An unvaried exchange rate between the Euro and the Croatian Kuna is anticipated by more than 56 percent of all survey participants. Nonetheless, the respective indicator is located in the negative range, standing at minus 14.7 points. This indicates that the share of respondents counting on a depreciation prevail over the analysts forecasting an upward revaluation of the Croatian currency.

Poland

The economic expectations for Poland improve by 21.4 points in April. The corresponding indicator is on the verge of turning positive now, closing at minus 1.8 points. By contrast, the current economic situation is regarded by half of the respondents as negative. The respective balance is the only one to deteriorate in this category, losing 0.8 to minus 29.6 points. As to the future development of the Polish currency versus the Euro, the financial experts still predominantly assume an appreciation of the Zloty on a six month time horizon.

Romania

In spite of the significant amelioration of the economic outlook for Romania by 23.2 points, the associated indicator brings up the rear again among the analysed countries, standing at minus 14.4 points. However, nearly half of the analysts predict an unchanged business cycle over the coming six months. The balance capturing the assessment of the present economic situation increases by 3.5 to minus 56.2 points.

Slovakia

The business expectations for Slovakia improve by 21.7 to minus 7.7 points. More than 57 percent of all respondents forecast an unvaried economic development. The financial experts’ assessment of the current economic conditions changes for the better, ascending 9.3 to currently minus 25.9 points. Among the analysed stock indices, the Slovak index SAX appears to be the only one which is rather neutrally than positively looked upon by the survey participants.

Czech Republic

According to the respondents, the Czech Republic belongs to the countries that feature comparatively bright chances for a medium-term recovery of the economy. The indicators with regard to the economic development within the next six months as well as the present economic circumstances note the sharpest increases in April, soaring 31.4 and 20.0 points to 5.5 and minus 20.4 points respectively. Moreover, the experts share a more positive view on the Czech than on all other analysed currencies, too. 51 percent consider an upward revaluation of the Coruna versus the Euro to be most probable for the next half year.

Hungary

Compared to the results for the other examined CEE countries, the analysts’ expectations regarding the cyclical trend in Hungary are rather cautious. In spite of having improved by 15.1 points, the corresponding balance stays in the red, reaching minus 5.6 points in April. More than 52 percent of the survey participants neither anticipate amelioration nor decline of the economic development over the coming six months. The evaluation of the present business situation in Hungary remains, despite a marginal ascent of 2.7 to minus 66.0 points in April, lowest among the CEE nations in question.

Nearly three quarters of financial experts expect the Hungarian National Bank to cut its key interest rate within the next half year.

Special question

This month’s special question deals with the medium-term recovery chances of selected CEE states. In line with the country analysis, the survey participants attach the highest potential for an economic rebound after the slowdown in late 2008 to the Czech Republic and Poland. By opposition, Hungary is assumed to possess rather low chances for a recovery of the business activity. Apart from the economic slump, the financial experts consider the feeble demand from abroad and the weakness of local currencies to be the major challenges of the CEE region as a whole in 2009.

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