ZEW-Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE) - The CEE Economic Sentiment Indicator Continues to Rise

The upward trend of the ZEW-Erste Group Bank Sentiment Indicator for Central and Eastern Europe (CEE) continues in September 2009. Expectations concerning the economic development over the next half year improve by 2.8 points with the index rising to 38.8 points. While 48.1 percent of the surveyed experts anticipate an improvement only 9.3 percent of the participants assume the business activity in the CEE region to worsen within the next six months. The amount of experts anticipating no change has significantly increased to 42.6 percent.

However, expectations regarding the economic development both in Austria and in the Eurozone have slightly deteriorated in September. The Austrian indicator decreases by 6.0 points to 44.0 points. The indicator for the Eurozone drops most strongly this month with a decrease of 7.3 points to 44.7 points.

The current economic conditions in the CEE region, Austria and the Eurozone is assessed much better in September compared to the previous month. All balances achieve double-digit improvements. Despite that, the scores remain negative. The indicator reflecting the current economic condition in the CEE region shows minus 47.3 points in September. Austria's corresponding indicator stands at minus 24.0 points and the indicator for the Eurozone rises to minus 36.9 points.

The balance indicating the expectations of the financial market experts towards inflation in the CEE region rises in September by 4.3 points to now minus 12.0 points. This shows that the majority of the participants in the survey believe in declining inflation rates in Central and Eastern Europe. In contrast, the majority of the financial market experts await inflation rates to be unchanged in both Austria and the Eurozone over the next six months. Consequently, 74.5 percent of the analysts think of the current short-term interest rates as being appropriate and do not anticipate interest rate increases by the ECB over the upcoming six months.

Expectations for the development of stock indices in CEE (NTX) and Austria (ATX) assimilate in the current survey. Both indicators stand at 18.5 points after an increase of the NTX’s balance by 1.5 points and a decrease of the balance representing ATX by the same amount. 40.9 percent of the participants in this survey predict rising stock indices in CEE and Austria over the next half year. The indicator representing Eurostoxx 50 increases by 5.2 points standing at 23.0 points in September.

Croatia

The Croatian sentiment indicator continues to rise significantly. By climbing 15.3 points it now stands at a level of 20.0 points. This is, however, as in August the lowest figure across all CEE countries. The balance showing the assessment of the financial market experts on the current economic situation in Croatia climbs by 21.5 points to minus 45.1 points.

The participants in this survey appraise the outlook for Croatia’s domestic stock market most bullishly compared to all CEE countries covered. By rising to 22.0 points, the balance showing the expected development of the CROBEX climbs to the highest value amongst all analysed countries.

The majority of the participants in this survey anticipate a depreciation of the Croatian currency compared to the Euro within the next six months. The corresponding balance has reached a level of minus 30.7 points in September.

Poland

In September, Poland’s economic outlook further improves. By rising 7.3 points, the Polish sentiment indicator now stands at 38.4 points which is the second best value across the analysed CEE countries. The estimation of the current economic situation reaches the strongest upswing in the current survey with an improvement by 40.4 points to minus 5.6 points. Hence, analysts assess the current situation in Poland most positive compared to all other CEE countries.

Romania

The economic sentiment indicator for Romania rises by 7.8 points to 30.0 points in September. 50.0 percent of the participants in this survey assume the economic development not to change over the next six months. The balance for the current economic situation in Romania increases significantly, however, it still stays clearly negative with minus 52.9 points. A shift of the forecasts towards a depreciation of the Romanian currency compared to the Euro can be identified in September. The corresponding balance decreases by 38.5 points to minus 20.8 points.

Slovakia

After having shown the strongest increase in August, the Slovakian sentiment indicator stays nearly unchanged at 35.4 points this month. 49.0 percent of the analysts expect an unchanged development of the economy over the next six months. However, the appraisal of the current economic situation increases strongly by 35.9 points. The corresponding balance climbs to minus 24.6 points. The assessment of the financial market experts concerning the development of the Slovakian stock index SAX improves by 4.1 points in September. However, with a value of 12.0 points the corresponding balance reaches the lowest value among all CEE countries.

Czech Republic

The sentiment indicator for the Czech Republic remains unchanged at 38.8 points. Although previous month’s strong boost was not to be continued in September, the indicator shows the best value among the six CEE countries analysed in this survey. The estimations of the analysts regarding the current economic situation improve by 14.0 percent to minus 37.0 percent.

After the cautious forecasts concerning the development of the Czech stock market in August, the indicator for the stock index PX50 improves significantly this month. With a current value of 21.1 points, the balance beats expectations for the stock markets of most other CEE countries.

Hungary

The assessment of the economic development over the next six months also improves for Hungary. The Hungarian sentiment indicator rises by 3.4 points to 30.8 points. However, the current economic situation is still seen as rather negative. With a balance of minus 74.0 points Hungary ranks last among the CEE countries analysed in this survey.

The majority of financial market experts agree upon the expected development of the Hungarian interest rates. 86.0 percent assume a decrease in short-term interest rates over the next six months.

Special Question

Within the scope of the special question in the September survey, financial market experts were asked to analyse some aspects of CEE labour markets. Thereby a clear picture can be drawn: 95 percent of the financial market experts assume an increasing unemployment rate in the CEE region by the end of 2009 compared to December 2008. The highest unemployment rate is clearly expected for Slovakia whereas the lowest unemployment rate is forecasted for the Czech Republic. While the construction and automotive sectors are estimated very critically, analysts’ appraisals of the food and utilities sectors are relatively positive in 2009.

Survey Procedure and Methodology

The Financial Market Survey CEE is a survey carried out by ZEW Mannheim and the Erste Group Bank AG Vienna, among financial market experts and has been conducted monthly since May 2007. 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 share 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: +49/621/1235-144, E-Mail: borell@zew.de