The Deloitte Business Sentiment Index: Do great minds think alike?

Views from executives in Central Europe

The findings for the first index show there is a wide gulf between the responses and outlook of professionals by country, with Poland consistently
the most optimistic in its attitude to the future. True, Poland is a well-established economy in the region, and is therefore more equipped perhaps to ”weather
the storm“ than less mature economies, such as Croatia, but the significant differences between its upbeat answers compared to its more pessimistic
partners in the index suggest this may herald a new era in the business dynamics of Central Europe, with Poland pulling away for good from its neighbours.
For instance, 60.5% of Polish executives feel their workforce will remain stable; over half (52.1%) believed the economy will improve over the next six
months, and 76.7% believe the financial prospects for their companies will improve.

These headline figures suggest Polish professionals have an impressive level of confidence that fortunes are about to change for the better for the Polish economy and its companies.
Compare these bullish outlooks, however, with other countries’ outlooks on the same issues: only around 30% of professionals in the Czech Republic believe
workforces will stay the same; an enormous 89.7% of Croatian executives feel the economy will deteriorate, and in Romania, 23.1% of those surveyed believe the
financial prospects of their companies are bleak.
The index finds the responses of the countries to be in line with the reaction to life after such a bruising year for the global economy: a mixture of negative and
slightly positive views combining to balance out in an overall expression of caution for the short term. With the responses of Poland, however, and more
upbeat cross-country forecasts on crucial issues for growth such as the availability of credit (for instance, Croatia and Czech Republic, on balance, show 58.6%
and 67.7% of their professionals respectively still believe credit is available), the index paints a broader picture of some signs of optimism to temper this
caution.

This could mean that companies approach the next financial period by regrouping and assessing the damage caused by the recession. This may
trigger proactive business activity such as renewed M&A interest – for example, companies disposing of their non-core activities, withdrawing from countries
or cutting product lines in order to reduce their debt levels and therefore starting to generate M&A activity again.

Overall, the Deloitte Business Sentiment Index amounted to 97 in this first edition (with the index scale being 0 to 200). We will use this as a benchmark
figure for future waves of the index (with the next edition due in December 2009) in order to build up a bank of sentiment figures for comparison and
analysis. The value 97 has been calculated as a result of the relative impact of the overly positive sentiment of business leaders from Poland (with their positive
responses pulling the index upwards) balanced out by companies from Croatia and Czech Republic (whose predominantly negative responses pulled the index
downwards), and with the three other countries polled in the index scoring around the mid-point.

Our findings show significant differences in outlook between the countries surveyed, which underlines the importance of a country-by-country approach to
recovery and a reminder that complacency has no place in the markets of the region.

The survey findings show interesting differences in individual country outlooks.

Economy prospects

In total, over 40% of those surveyed feel that the general prospects of the economy will deteriorate over the next six months, with just over a quarter
(26.8%) believing that it will improve.
• The worst expectations are in Croatia, Czech Republic and Slovakia, whereas over half of professionals from Poland (51.2%) believe the
economy will improve.

Company prospects

In contrast, the professionals surveyed about the future financial prospects of their companies were more optimistic, with a positive result of 45.8% of
respondents compared to a negative of 15.3% of those surveyed.
• The most positive feelings about financial prospects are in Poland (76.7%), Slovakia (56.7%) and Hungary (48.4%).

Credit availability

Almost two thirds of the total (57.9%) believed credit was available to them, with the best situations reported in Poland (72.1 % positive) and Czech
Republic (67.7% positive).

Payment terms

Despite the natural concern that companies would take a long time to repay in times of recession, the majority of those surveyed did not feel there to be
any danger of not being paid back by debtors. Only Croatia, compared to the other countries, reported significant delays in payment.

Sales revenue

Most of those surveyed were optimistic that sales revenues would increase (41.1% of the net total) over the next 12 months, compared to 4.2% thinking that
they would reduce significantly.

Launching new products

Well over half (56.8%) were optimistic of launching new products or services in the next 12 months – although Czech Republic reported both positive and
negative responses of 45.2% for the likelihood of new product launches.

Changes in workforce over next 12 months

Over half of respondents (52.1%) expect their workforce not to change in the following year, with the most confident of stability in the workforce being
Poland (60.5% of those surveyed in the country). The worst situation seems to be in Croatia and Czech Republic, the best in Hungary.

Spending on capital goods

Two fifths (40.5%) of respondents expect their spending on capital goods to stay unchanged.

Likelihood of M&A activity

In all the countries company acquisitions are very unlikely, as 60% of responses were negative. The most pessimistic responses came from Slovakia (70%
extremely unlikely of takeover activity), the most optimistic ones from Poland (7.7% likelihood).

Regulatory environment

Over three fifths (61%) of respondents believe that he regulatory environment will remain unchanged.

Special question: EU funds availability

A quarter (25.5%) of respondents believe EU grants re fairly or easily available, but twice as many (51.6%) felt the grants were fairly or very hard to
obtain. The worst availability of EU grants seems to be in Romania and Slovakia.

Although the survey finds the majority of respondents are at best cautious, or (as seems to be more the case) very pessimistic about the state of the global
and regional economy, there do seem to be the first signs that the recession is coming to an end in the Central Europe countries surveyed.
True, the general sentiment index is negative, but a large group of companies that view the situation for their own operations fairly optimistically. Hopefully,
they will undertake positive actions to drive their companies forward, which will then influence the economy accordingly and stimulate investment
demand, which will in turn speed up the growth rate of the GDP and economic recovery overall. But we’re not out of the woods yet. The effects
of such an enormous crash are still being felt, and it is those economies which stretched themselves too thinly in times of plenty which are suffering
accordingly as markets begin to rebalance.

Employment levels will have to react accordingly to productivity slowdowns and job losses will be inevitable in many of the countries surveyed.
On a more positive note, compared to other economies, including ”safer“ bets such as the UK and US, CE enjoys a degree of comfort from the
presence of the EU and its purse. Yes, some of the region’s constituents, such as Croatia, are struggling, but with others such as Hungary stabilising at the
point of low or no growth there is a case for believing that economies have no further left to fall and will therefore have to begin the steep climb towards
recovery, no matter how slowly.

And of course, there’s the case of Poland – with consistently positive responses to the questions posed, Polish executives gave every indication that the
country will emerge not just as the most important player in Central Europe but also as a significant force in the global markets. If these predictions hold true, we should be looking
toward positive integers emerging and not a sea of minus signs over the next few months (even if those plus signs are only followed by single digits). One
of the lessons learnt from this global financial crisis should be that economies are more measured in their recovery plan and future strategies.

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