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Economic Sentiment Indicators (Jun.)

Sharp fall in sentiment as recovery starts to slow

  • The EC’s Economic Sentiment Indicators for Central and Eastern Europe showed broad-based declines in sentiment across the region and across sectors in June to levels not seen in a year. Economic activity has generally held up well since the war in Ukraine started a few months ago, but the second half of this year is likely to be more challenging and we think economic recoveries will slow sharply.
  • Economic sentiment fell last month in eight of the ten economies that we cover, with the sharpest falls in Slovakia and the Baltic States while increases were recorded in Bulgaria and Croatia. Our GDP-weighted measure for Central and Eastern Europe fell from 98.9 to 97.1, its lowest level since April last year and down markedly from its recent high of 120.0 in February. (See Chart 1.)
  • The decline in sentiment was broad-based and comes amid a backdrop of very high inflation, spillovers from the war in Ukraine and concerns about a euro-zone recession. Sentiment in the services sector fell particularly sharply in the Central European economies of Slovakia, Hungary and Czechia. Consumer confidence was weak across the board, with the largest falls recorded in the Baltic States where confidence slumped to its lowest level since early 2010.
  • It was a downbeat story in other sectors of the economy too. Sentiment in construction fell sharply in the region’s largest economies, including to levels not seen in more than a year in Poland, Hungary and Romania. Industrial sentiment fell to a seven-month low in Poland. It was at least encouraging, though, that firms’ export order books picked up in Czechia and Hungary last month.
  • Meanwhile, the survey also provided more encouraging evidence that price pressures are starting to top out. Firms’ selling price expectations in the industrial sector declined for the second consecutive month and they ticked down in the services sector (although they hit a fresh-record high in the retail sector). (See Chart 2.) With global energy prices so high, goods shortages easing only slowly and strong wage growth feeding into firms’ costs, inflation pressures are likely to remain elevated well into 2023.

Chart 1: CEE* Economic Sentiment Indicator

Chart 2: CEE* Firms’ Selling Price Expectations

chart001-320.pngchart002-250.png

Sources: EC, Refinitiv, Capital Economics *GDP-weighted average

Sources: EC, Refinitiv, Capital Economics *GDP-weighted average

Table 1: Economic Sentiment Indicators

Poland

Czechia

Hungary

Romania

Slovakia

Bulgaria

Croatia

Lithuania

Latvia

Estonia

Mar.

98.3

91.2

103.1

103.7

96.2

95.6

109.5

100.7

95.4

101.3

Apr.

98.6

92.7

102.7

104.3

91.1

95.8

110.3

100.5

95.0

100.0

May

97.8

96.8

102.4

102.2

98.2

94.8

109.3

101.6

94.4

96.6

Jun.

96.0

94.6

100.3

100.8

92.4

98.5

109.4

100.2

90.3

92.6

Sources: European Commission, Refinitiv


Liam Peach, Emerging Europe Economist, +44 (0)20 7808 4990, liam.peach@capitaleconomics.com