SEE: Lacking in Confidence
19. November 2011. | 12:44
Author: Marija Kuzmanovic, Peter Sanfey.
Of all the EBRD’s sub-regions, south-eastern Europe (SEE) has been the slowest to emerge from the crisis.. Confidence in SEE countries is therefore likely to stay at low levels in the short run unless there is a swift resolution to the eurozone crisis and an upturn in its economic prospects.
Of all the EBRD’s sub-regions, south-eastern Europe (SEE) has been the slowest to emerge from the crisis.
One reason behind the sluggish recovery is undoubtedly a general lack of confidence throughout the economy. This note looks at the latest consumer confidence indicators for selected SEE countries.
These data are useful because they are often more up-to-date than other economic variables and can help to predict short-term trends. The results show that, not only are confidence levels well below the EU average, but they are also steady or falling in recent months.
Given the close historical link between these indicators and subsequent economic performance, they provide another reason why the short-term outlook for the region remains bleak.
In the SEE region, consumer confidence indicators are available for all but three countries. In the EU member states, Bulgaria and Romania, and in Croatia (which has completed accession negotiations), the surveys are conducted on a monthly basis according to a methodology established by the European Commission, the Joint Harmonised EU Programme of Business and Consumer Surveys. In Albania and FYR Macedonia, the methodologies are broadly similar but not fully comparable to the other three countries.
Three observations emerge from the data.
- First, consumer confidence in SEE fell much more drastically during the crisis compared to the EU average. At its trough (mid-2009), the consumer confidence indicators in the EU averaged at about -30 whereas for the countries in the region the index bottomed out at around -50 .
- Second, the subsequent recovery has been much slower, with the EU average bouncing back already in the second half of 2009 while the indicators for most of the SEE countries lingered around the same low level for all of 2009 and the first half of 2010.
- Third, while confidence showed some signs of improvement in the second half of 2010 (notwithstanding a big drop in Romania in Q3 2010) and the first half of 2011, it is steady or even falling again in recent months across the whole region, as it is in the EU.
We examined the correlation between these confidence indicators and several economic variables. We found a positive correlation across the region between the level of the consumer confidence indicator and GDP growth in the same quarter.
The correlation is strongest in Bulgaria and Croatia and weakest in FYR Macedonia and Albania, which may be due to some of the methodological differences in the construction of the indicators.
Second, a cross-country regression analysis shows a positive and statistically significant relationship between current confidence and GDP growth, and between confidence and import growth. The level of confidence also helps predict future credit growth.
These results suggest that no serious recovery will take place soon.
The current (early-November) turmoil in Greece and Italy can only add to the overall nervousness of the region, which has strong trade, financial and remittance links with these countries.
Confidence in SEE countries is therefore likely to stay at low levels in the short run unless there is a swift resolution to the eurozone crisis and an upturn in its economic prospects.
Marija Kuzmanovic and Peter Sanfey.