01/2024

CEE Economic
Monthly
January 2024
Content:
▶ The accuracy of business surveys is subject to continuous discussion. Consensus suggests that
Macroeconomics:
soft indicators provide relatively good guidelines about manufacturing production both for the
Jakub Rybacki
jakub.rybacki@pie.net.pl
current and the next quarter. However, recent trends divert strongly from the economic forecasts,
@jakubrybacki2 especially in the manufacturing sector.
+48 512 275 365 ▶ We analyzed this behavior with the DCC GARCH model. It suggests that recent correlations
between manufacturing production and the PMI survey results are rather weak – high numbers
Marcin Klucznik
visible in the computation of simple Pearson correlation are related to outliers. The full report is
marcin.klucznik@pie.net.pl
@MarcinKlucznik presented in the section Are business sentiment surveys still reliable.
+48 503 457 274 ▶ Secondly, we analyze the performance of surveys in CEE countries. Poland is a relatively devel-
oped market for business surveys. Results from the European Commission polls tend to predict
Sergiej Druchin
the trends most accurately in the various sectors. Recent readings suggest a rebound in activity,
sergiej.druchyn@pie.net.pl
@druchin_s
but correlations weakened over the last months. More in the section: Poland: Sentiment indicators
+48 792 766 265 suggests rebound of activity.
▶ In Czechia, the European Commission’s Economic Sentiment Indicator surveys demonstrate
Sebastian Sajnóg
the highest ability to predict changes in activity, while the surveys of the Central Statistical Office
sebastian.sajnog@pie.net.pl
perform badly. The period following the pandemic is characterized by a decrease in the average
@BastianSajnog
+48 501 837 748 correlation between the survey and industry results. More in the section: Czechia: Weak perfor-
mance of statistical office surveys.
Dawid Sułkowski ▶ The characteristics of sentiment indicators within the Hungarian economy vary between manu-
dawid.sulkowski@pie.net.pl
facturing and other key sectors. Predictions derived in manufacturing are unstable. Conclusions are
@Dawid_Sulkowski
+48 885 062 001
often contradictory to the actual data. In contrast. Sentiment indicators provided by the European
Commission consistently align well with changes. We present the details in the section: Hungary:
Energy: Good performance of services survey.
Maciej Miniszewski ▶ The last analyzed country is Slovakia. The greatest correlation occurs between the Year-on-Year
maciej.miniszewski@pie.net.pl changes and construction sector activity. In most cases, the correlation in the period from the
@macminiszewski second half of 2020 to 2023 is higher than in the years 2015-2019 due to outliers. More in the sec-
+48 799 126 992 tion Slovakia: Survey from statistical office provides good indications.
▶ Rising energy costs constitute an increasing share of the total cost of doing business. The energy
crisis has increased interest in the energy market. Changes in fuel and electricity prices correlated
with business surveys among enterprises. We summarized the impact of energy prices on business
climate surveys in the section: Energy costs hardly impact business surveys.

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PMI and the Global Growth (%YoY)

60 15

57 12

54 9

51 6

48 3

45 0
2021 2022 2023

Global PMI - overall (lhs) Global PMI - services (lhs) Global PMI - manufacturing (lhs) Global GDP YoY growth rate (rhs)

Source: JP Morgan via S&P, World Bank.

CEE Economic Monthly • January 2024 2

Are business sentiment surveys still reliable?

▶ We analyzed behavior of the sentiment polls during the years 2011-2023 in the manufactur-
ing sector. The DCC GARCH model suggests that recent correlations between actual data and
the survey results are rather weak – high numbers visible in the computation of simple Pearson
correlation are related to outliers.

▶ The accuracy business surveys is subject to continuous discussion in the European Union
(e.g. Hansson et al, 2005). Consensus suggests that soft indicators provide relatively good guide-
lines regarding manufacturing production, both for the current and the next quarter. The stud-
ies published after the COVID-19 pandemic suggest that good track records were maintained
in Germany (Lehmann, 2023) and the US (Altig et al., 2022). These conclusions result from the
obvious strong trends visible in the data. At the beginning of 2024 the situation is more puzzling.
The surveys signal further deterioration, while most economic forecasts suggest a rebound. We
calculated the correlations across the CEE regions – the numbers are relatively high for annual
rate of change and standard index (table 1.1).

Table 1.1. Correlations between Manufacturing Production and PMI indices in CEE countries

Annual Rate of change Monthly Rate of change Annual Rate of change Monthly Rate of change
Country in production in production in production in production
vs the PMI Index vs the PMI Index vs change in the PMI Index vs change in the PMI Index

Poland 0.54 0.25 0.05 0.61

Czechia 0.47 -0.05 0.24 0.16

Hungary 0.35 0.21 0.01 0.20

We compared the manufacturing production figures and the survey results for the same months without any leading and lagging indications. The sample
consists of all available data between 2011 and 2023.
Source: PEI calculations based on the S&P, Halpim and Eurostat.

▶ The increase in correlation between manufacturing production and published surveys is mis-
leading. If we compare the standard Pearson Correlations between manufacturing production
and PMI index, we see a strong increase after the COVID-19 pandemic. However, this change is
rather related to the existence of big outliers i.e. due to lockdowns and resurgence of economic
activity. We calculated the rolling 3-years correlations. Such indicators are high during the years
2021-2023, however they fell abruptly immediately after the data from April 2020 is dropped out
of the sample. Recent performance is the worst result in the last decade in Hungary and Czechia
and relatively poor in Poland.

▶ Actual correlations are rather weak. We utilized the DCC GARCH model to analyze the behav-
ior of correlations between the PMI surveys and manufacturing results. The idea of the model
is that correlations between variables are fitted to follow a very specific continuous process,
which at least partially eliminates the influence of the outliers. In such conditions the numbers
are lower (table 1.2).

▶ Furthermore, conditional correlations are negative in 2022. Our model has a capacity to dis-
tinguish between short term correlations and the long-term ones. The results for Poland and
Czechia suggest that trends presented in the survey missed actual data.

CEE Economic Monthly • January 2024 3

Figure 1.1. Rolling 3-years correlation between annual rate of change in manufacturing production
vs PMI Index

1.0

0.8

0.6

0.4

0.2

0.0

-0.2
2015 2017 2019 2021 2023

Poland Czechia Hungary

Source: PEI calculations based on the S&P, Halpim, and Eurostat.

Table 1.2. Correlation in the DCC GARCH Model

Annual Rate of change Monthly Rate of change Annual Rate of change Monthly Rate of change
Country in production in production in production in production
vs the PMI Index vs the PMI Index vs change in the PMI Index vs change in the PMI Index

Poland 0.44* 0.24 0.10* 0.28*

Czechia 0.28* 0.10 0.17 0.14

Hungary 0.26 0.23 0.12 0.23

Star indicates that parameter α of DCC GARCH is statistically different from zero. In such conditions dynamic correlations are present.
Source: PEI calculations based on the S&P, Halpim and Eurostat.

Figure 1.2. Dynamic correlations implied by the GARCH model for the annual Rate of change in production
and the PMI Index

1.0

0.8

0.6

0.4

0.2

0.0

-0.2

-0.4

-0.6
2014 2016 2018 2020 2022

Poland Czechia

Source: PEI calculations based on the S&P and Eurostat.

CEE Economic Monthly • January 2024 4

Poland: Sentiment indicators suggests
rebound of activity

20,9%
▶ Poland has a relatively developed market for business surveys. Results from the European
Commission poll tend to identify trends most accurately in the various sectors. Recent readings
suggest a rebound of activity, but correlations weakened over the last months.
Average correlation
between
manufacturing ▶ In Poland, there are four regularly published economic sentiment indicators with accessible
business surveys data:
index (PMI, EC, 1. Purchasing Managers’ Index (PMI) – assessing the sentiments in manufacturing only.
GUS) and YoY 2. Business and Consumer Survey of the European Commission (EC) – a detailed survey moni-
manufacturing
toring business sentiments and assessments across all EU member states.
growth in Poland
between 2015 3. Economic Sentiment Survey (PL: Wskaźniki koniunktury gospodarczej) – conducted by the
and 2019 Polish Statistical Office (GUS).
4. Monthly Business Climate Index (PL: Miesięczny Indeks Koniunktury) – conducted by the

47,1% Polish Economic Institute.

Average correlation ▶ Correlation analysis suggests that the relationship between business surveys and actual
between macro dynamics is very turbulent. For Poland two types of comparisons are most strongly cor-
manufacturing related – the business climate index with YoY macro changes and the change in the business
business surveys
climate index with MoM macro changes. However, both relationships are problematic. That can
index (PMI, EC,
GUS) and YoY be seen by the example below – correlation varies a lot depending on choice of transformation
manufacturing used and time analyzed.
growth in Poland
between H2 2020
▶ YoY-index correlation is most likely based largely on base effects and the inertia (slow chang-
and 2023
es) of macroeconomic data and surveys. The predictive value of such a snapshot is sometimes
limited. These correlate well for the construction sector (up to 50-70%) – likely due to high in-
ertia in data. Results for manufacturing are weaker and vary between 15 and 55% depending on
the period chosen. In the case of retail trade, correlations are weak and may not exceed 15%.

Figure 2.1. Manufacturing growth in Poland and a variety of business surveys

40 60

30
36

20
12

10

-12
0

-36
-10

-20 -60
2015 2016 2017 2018 2019 2020 2021 2022 2023

Manufacturing (%YoY, 3MA, lhs) PMI (rhs) European Commision (rhs) GUS - Poland Statistics (rhs)

Note: all business surveys were rescaled to range from -50 to 50 points based on maximum and minimum values in the years 2015-2023.
Source: Eurostat, GUS, S&P.

CEE Economic Monthly • January 2024 5

Figure 2.2. Pearson’s correlation between manufacturing and surveys depending on transformation
used (%)

YoY and index MoM and index MoM and change in index

60 55 30 50
25 39
48

39 28
5087 26
20 18
25
28
30 11
19 10 7
15
4 4895
0
3263
0
0
-16
-25
-10 -8 2077
-29
-13 995
-26 -16
-30 -20 -50 -44
PMI EC PEI GUS PMI EC PEI GUS PMI EC PEI GUS

2015-2019 H2 2020-2023

Note: YoY dynamics are not seasonally adjusted, MoM dynamics are seasonally adjusted. Change in index indicates a monthly change expressed in points.
PEI’ survey started in January 2021.
Source: Eurostat, GUS, S&P, PEI.

▶ MoM correlations with index changes are not statistically significant. They may provide robust
results for median observations – however, sometimes they are prone to very strong fluctuations
and choppiness. Those relations seem to correlate better in recent months in manufacturing as
Pearson’s correlation increased up to 26-39%. However, correlations in past years or other macro
indicators used are weaker or even negative.

Figure 2.3. Rolling 3-years correlation between annual change in macro indicators and best survey

1,0

0,8

0,6

0,4

0,2

0,0

-0,2
2018 2019 2020 2021 2022 2023

Manufacturing Construction Retail Trade

Note: best correlating survey for period of H2 2020 – 2023. In all cases that turned out to be the index of European Commission’s survey.
Source: Eurostat.

CEE Economic Monthly • January 2024 6

 ▶ For both measures, the strength of the correlation strongly depends on the period stud-
ied. As a rule, between 2020 and 2023, surveys correlated better than before the pandemic
outbreak. However, this correlation is not necessarily due to improved survey quality. A more
likely explanation is greater economic volatility in the business cycle. Before the pandemic
outbreak, changes in the economy were slower – meaning that random fluctuations in activity
from month to month played a relatively greater role, while actual macro trends were relatively
diminished. Furthermore, using a 3-year rolling average we show that large drops in activity
rates during early months of the pandemic have led to a transitory increase in correlations as
large outliers have entered the sample. Those relations have relaxed in retail trade during the
past months, as outliers are slowly exiting the rolling sample. Correlation in manufacturing
remains quite strong, yet one needs to remember that Polish manufacturing had an above-
average growth rate up to end of 2022. Hence one could predict that this measure is likely to
deteriorate from 2025 onwards.

Table 2.1. Correlation matrix between business surveys in Poland and their respective macro indicators
Manufacturing Construction Retail trade
Correlation between Period
PMI EC GUS PEI EC GUS PEI EC GUS PEI

YoY change vs survey’s 2015-2019 28.0% 15.3% 19.3% 71.8% 58.5% 8.2% 10.7%
index H2 2020-2023 47.8% 54.9% 38.6% -25.8% 61.1% 14.0% 52.2% 17.6% -1.6% 58.2%

YoY change vs change in 2015-2019 0.3% 7.7% 11.3% 22.5% 12.3% 9.4% 12.4%
survey H2 2020-2023 -1.6% -4.8% 4.1% 3.4% -36.9% -27.7% -1.5% 3.5% -4.6% 1.9%

MoM change vs survey’s 2015-2019 6.6% -8.1% -15.7% 16.0% 12.0% 2.3% 4.8%
index H2 2020-2023 24.9% 4.4% 17.8% -13.2% 5.1% -1.7% -1.9% -5.0% 10.5% 12.3%

MoM change vs change 2015-2019 11.0% -15.7% -29.2% 41.1% 0.8% 21.4% 32.7%
in survey H2 2020-2023 28.1% 38.9% 26.4% -44.2% -9.3% -6.4% -6.6% 13.4% 17.3% 1.1%

Note: YoY dynamics are not seasonally adjusted, MoM dynamics are seasonally adjusted. Change in index indicates a monthly change in expressed in
points. PEI’ survey started in January 2021.
Source: Eurostat, GUS, S&P, PEI.

CEE Economic Monthly • January 2024 7

Czechia: Weak performance of statistical
office surveys

44,1%
▶ In the case of the Czechia, the European Commission’s Economic Sentiment Indicator surveys
demonstrate the highest ability to predict activity. The period following the pandemic is charac-
terized by a decrease in the average correlation among the most important economic sentiment
Average correlation indicators, which is particularly noticeable in the case of industrial results.
between
manufacturing
business surveys ▶ In Czechia, there are three regularly published economic sentiment indicators:
index (PMI, EC, 1. Purchasing Managers’ Index (PMI) – assessing the sentiments among domestic
CZSO) and YoY industrialists.
manufacturing
2. Business and Consumer Survey of the European Commission (EC) – a detailed survey moni-
growth in Czechia
between 2012 toring business sentiments and assessments across all EU member states.
and 2019 3. Economic Survey (Cz: Konjunkturální průzkumy) – conducted by the Czech Statistical Of-
fice (CZSO), examining sentiments among both entrepreneurs and consumers.

19,6% ▶ All these indicators are published regularly monthly, and the results have been subject to
Average correlation analysis since May 2012.
between
manufacturing ▶ The Economic Sentiment Survey published by the European Commission exhibits the strong-
business surveys
est correlation with economic activity. A Pearson correlation analysis allows us to conclude that
index (PMI, EC,
CZSO) and YoY the European Commission’s surveys are the most reliable predictor of industrial results. Correla-
manufacturing tion between the index and the annual growth rate amounts 51.2% from 2012 to 2019; and 30.2%
growth in Czechia from 2020 to 2023. Similar patterns are visible in the case of the construction sector – correla-
between H2 2020 tions stay at 40.8% and 57.8% respectively.
and 2023

Figure 3.1. Industrial Production in the Czechia and Business Sentiment Indicators: PMI and European
Commission

80 70

60 60

40 50

20 40

0 30

-20 20

-40 10

-60 0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

YoY NSA EC PMI (rhs)

Source: Eurostat, S&P.

CEE Economic Monthly • January 2024 8

Figure 3.2. Rolling 3-years correlation between annual rate of change in manufacturing production,
construction and retail vs Economic Sentiment Indicator (European Commission)

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

-0.1

-0.2

-0.3
2015 2016 2017 2018 2019 2020 2021 2022 2023

Manufacturing Construction Retail Trade

Source: European Commission, Eurostat.

▶ The post-pandemic period is generally characterized by a decrease in correlations between

economic sentiment indicators and economic outcomes, overall. This reduction is visible in the
context of all three main indicators. Dynamic changes that occurred in the economy have weak-
ened the relationship between the studied sentiments and economic data. Moreover, the period
of economic slowdown, which began in 2022, indicates that sentiment surveys were overly reac-
tive, characterized by excessive pessimism, and suggested larger declines than those observed
in the economic data.

Table 3.1. Correlation matrix between business surveys in Czechia and their respective macro
indicators

Manufacturing Construction Retail trade

Correlation between Period
PMI EC CZSO PMI EC CZSO PMI EC CZSO

YoY change vs survey’s 2012-2019 49.6% 51.2% 31.6% 40.8% 40.8% 47.5% 34.6% 70.6% 75.1%
index H2 2020-2023 20.8% 30.2% 7.7% 40.8% 57.8% -9.3% 65.7% 34.1% 18.6%

YoY change vs change 2012-2019 12.4% -3.3% -13.1% 0.1% 6.9% 6.5% -2.3% 6.5% -1.5%
in survey H2 2020-2023 10.5% 7.0% 20.8% -30.0% 16.4% -14.5% 12.2% 28.3% 34.8%

MoM change vs survey’s 2012-2019 15.9% 16.0% 3.1% 6.4% 1.9% 5.6% 10.6% 15.5% 9.2%
index H2 2020-2023 -9.6% 12.6% -1.4% 5.2% -3.9% 9.9% 7.0% 3.4% 39.5%

MoM change vs change 2012-2019 26.3% 9.7% -8.5% 0.6% -4.4% -12.6% 15.4% 6.4% -6.1%
in survey H2 2020-2023 9.0% 43.8% -30.1% 16.8% -3.6% -2.4% 3.7% 44.5% 39.3%

Source: CZSO, Eurostat, S&P.

CEE Economic Monthly • January 2024 9

Hungary: Good performance of services
survey

4.8%
▶ The performance of sentiment indicators within the Hungarian economy varies between manu-
facturing and other key sectors. Predictions derived from sentiment indicators in manufactur-
ing are unstable, conclusions are often contradictory to the actual data. Sentiment indicators
Average correlation provided by the European Commission consistently align well to changes in the activity of the
between
manufacturing construction, retail trade, and services sectors. Notably, the predictability of these indicators has
business surveys even improved after the COVID-19 pandemic.
index (PMI, EC) and
YoY manufacturing ▶ Sentiment in the Hungarian economy sectors is monitored through two regularly published
growth in Hungary
indicators:
between 2015 and
2019 1. Purchasing Managers’ Index (PMI) – assessing the sentiments exclusively among domestic
manufacturing companies.

11.0%
2. Business and Consumer Survey of the European Commission (EC) – a detailed survey that
monitors business sentiments and assessments across all EU member states, encompass-
ing key sectors of the economy.
Average correlation
between
manufacturing ▶ Sentiment indicators for the Hungarian manufacturing sector exhibit weak predictive power
business surveys for economic activity. Manufacturing is the sole sector equipped with two publicly available
index (PMI, EC) and
sentiment indicators. However, utilizing them as reliable forecasting variables poses challenges.
YoY manufacturing
growth in Hungary Before the COVID-19 pandemic, the PMI index and its monthly changes demonstrated the strong-
between H2 2020 est correlation with monthly manufacturing production, exceeding 19%. Nevertheless, since the
and 2023 second half of 2020, PMI figures have proven counterintuitive. Correlations of the monthly change
in manufacturing production show negative values with both the PMI index and PMI MoM change,
registering at -19.9% and -8.5%, respectively.

Figure 4.1. Manufacturing growth in Hungary and a variety of business surveys (SA, 3-months MA)

50 65

40
60
30
55
20

10 50

0
45
-10
40
-20

-30 35
2015 2016 2017 2018 2019 2020 2021 2022 2023

YoY (lhs) ESI (lhs) PMI (rhs)

Source: Eurostat, Halpim.

CEE Economic Monthly • January 2024 10

 ▶ The Economic Sentiment Indicator of the European Commission effectively aligns with eco-
nomic activity in the construction sector. The overall correlation between the survey’s index and
year-on-year changes in construction production since 2015 stands at 75%, with a pre-pandemic
correlation of 77% and a post-pandemic correlation of 59%. However, a 3-year rolling correlation
reveals two distinct periods, 2014-2016 and 2017-2019, during which this correlation significantly
weakened (see Figure 4.2).

Figure 4.2. Rolling 3-years correlation between annual rate of change in manufacturing production
vs Economic Sentiment Indicator (European Commission)

1.0

0.8

0.6

0.4

0.2

0.0

-0.2

-0.4
2015 2016 2017 2018 2019 2020 2021 2022 2023

Manufacturing Construction Retail Trade

Source: Eurostat.

Table 4.1. Correlation matrix between business surveys in Hungary and their respective macro
indicators

Construc- Retail
Manufacturing Services
tion trade
Correlation between Period

PMI EC EC EC EC

2015-2019 5.1% 4.4% 77.0% 13.0% 52.7%

YoY change vs survey’s index
H2 2020-2023 -5.5% 16.5% 58.9% 68.6% 63.3%

2015-2019 -0.1% 0.4% 10.9% -4.5% 18.5%

YoY change vs change in survey
H2 2020-2023 4.9% 19.9% -5.1% -3.2% -0.4%

2015-2019 19.2% 1.3% 12.2% 5.4% 5.2%

MoM change vs survey’s index
H2 2020-2023 -19.9% -9.9% 8.2% 28.0% 11.1%

2015-2019 19.4% -2.0% 21.2% 0.3% 3.8%

MoM change vs change in survey
H2 2020-2023 -8.5% 23.4% 8.0% -8.1% 12.0%

Note: Change in index indicates a monthly change expressed in points. YoY and MoM changes are seasonally adjusted. The timeframe for services is
2017-2019 for YoY change and 02.2016-2019 for MoM change – instead of 2015-2019.
Source: Eurostat, Halpim.

CEE Economic Monthly • January 2024 11

 ▶ Sentiment indicators for retail trade and services demonstrated an enhanced predictability
of actual data leading up to the onset of the pandemic. Comparing the periods of 2015-2019 and
the 2nd half of 2020-to 2023, the Pearson correlation increased notably, rising from 13% to 69%
for retail trade and from 53% to 63% for services. Moreover, the survey’s index also effectively
aligns with the MoM changes in retail trade, boasting a correlation of 28% since the second half
of 2020. This relationship appears to be valuable, considering that monthly changes are more
up to date and less influenced by historical shifts and base effects compared to YoY changes.

▶ In manufacturing, changes in the sentiment index prove to be a better fit for actual produc-
tion than value of survey’s index, while for other sectors, the opposite holds true. As intended,
index value should inform if the economic activity shrank (index below neutral level) or improved
(index above neutral level) compared to previous period. Nevertheless, there are instances where
changes in the index offer a more accurate indication of actual shifts in production. Conse-
quently, we analyzed the correlation between monthly changes in sentiment indicators and both
YoY and MoM changes in production. In case of the Hungarian economy, it indeed appears that,
except for manufacturing, survey indices more precisely fit data than MoM changes in those in-
dicators. In the case of manufacturing production, changes in the survey’s index more often tend
to show strong negative correlation with actual production.

CEE Economic Monthly • January 2024 12

Slovakia: Survey from statistical office
provides good indications

34%
▶ The last analyzed country is Slovakia. The greatest correlation occurs between the Year-on-
Year changes and the construction sector activity. In most cases, the correlation in the period
from the second half of 2020 to 2023 is higher than in the years 2015-2019 due to outliers.
Average correlation
between
▶ Sentiment in Slovakia is measured by two indicators:
manufacturing
business surveys 1. The Business and Consumer Survey by the European Commission (EC) – this detailed
index (SR, EC) and survey monitors sentiments and assessments of the situation across all the EU member
YoY manufacturing states, in all the key sectors of the economy.
growth in Slovakia
2. The Business and Consumer Survey of the Slovak Statistical Office (SR) – this survey moni-
between 2015
and 2019 tors sentiments and assessments of the situation in the Slovakian manufacturing, con-
struction, and retail trade sectors.

28% ▶ The activity in the industrial sector weakly correlates with the survey results. The strongest
correlation occurs between the annual change in the production of industry and the economic
Average correlation
between sentiment indicator measured by the Slovak Statistical Office (35.5%). It’s noteworthy that for the
manufacturing first period, i.e., 2015-2019, the economic sentiment surveys conducted by the European Com-
business surveys mission and the Slovak Statistical Office showed similar performance. The situation is different
index (SR, EC) and
when analyzing the Month-on-Month (MoM) changes compared to the sentiment indicators –
YoY manufacturing
growth in Slovakia a negative correlation was noted for the studies of the European Commission (-22.9%) and the
between H2 2020 Slovak Statistical Office (-24%).
and 2023

Figure 5.1. Manufacturing growth in Slovakia and a variety of business surveys (SA, 3-months MA)

60
50
40
30
20
10
0
-10
-20
-30
-40
-50
-60
-70
-80
2015 2016 2017 2018 2019 2020 2021 2022 2023

YoY EC Slovak Statistical Office

Source: European Commision, Slovak Statistical Office.

▶ The best representation of changes in the construction sector is indicated by the Slovak Sta-
tistical Office’s index. The overall correlation between YoY changes and the sentiment indicator
was observed from the second half of 2020 until the end of 2023. The European Commission’s
economic sentiment indicator also showed good results, being only 0.6 percentage points lower.

CEE Economic Monthly • January 2024 13

 At the same time, in the analysis of the three-year moving average, the construction sector
achieved the highest correlation from 2017 until the end of 2020.

Figure 5.2. Rolling 3-years correlation between annual rate of change in manufacturing, construction,
and retail trade vs Economic Sentiment Indicator (European Commission)

1.0

0.8

0.6

0.4

0.2

-0.0

-0.2

-0.4
2015 2016 2017 2018 2019 2020 2021 2022 2023

Manufacturing Construction Retail Trade

Source: European Commission, Slovak Statistical Office.

Table 5.1. Correlation matrix between business surveys in Slovakia and their respective macro
indicators

Manufacturing Construction Retail trade Services

Correlation between Period Slovak Slovak Slovak

EC Statistical EC Statistical EC Statistical EC
Office Office Office

YoY change vs survey’s 2015-2019 34.3% 33.7% 20.6% 18.9% -0.7% -5.4% -26.1%
index H2 2020-2023 18.7% 37.3% 73.2% 73.8% 39.8% 38.6% 58.3%

YoY change vs change 2015-2019 17.3% 14.7% -5.2% -9.4% 0.8% 1.0% 1.0%
in survey H2 2020-2023 -1.0% 5.0% 17.4% 21.5% 37.2% 31.2% 2.5%

MoM change vs survey’s 2015-2019 -7.6% -1.9% -3.5% 12.2% -0.5% 2.0% -3.7%
index H2 2020-2023 -38.1% -46.1% 8.1% 5.3% -6.1% -1.7% -10.8%

MoM change vs change 2015-2019 3.6% 3.3% -0.9% 1.4% -2.7% -1.9% 6.6%
in survey H2 2020-2023 19.3% 13.5% 25.6% 21.7% 26.8% 21.3% 27.4%

Source: own calculations.

▶ The retail and services sector showed a lower correlation, though the post-pandemic period
proved to be better for forecasting. According to the analyzed data, the business sentiment
regarding the current situation of companies did not reflect the actual state of this sector – in
most cases, during 2015-2019, the correlation was not noticeable. The situation is different af-
ter the onset of the COVID-19 pandemic – the correlation between YoY changes and economic

CEE Economic Monthly • January 2024 14

 sentiment indicators (both EC and Slovak Statistical Office) is nearly 40%. A relatively strong
correlation also occurs when examining the monthly changes in the sentiment indicator – 37.2%
and 31.2% for the EC and Slovak Statistical Office respectively. However, the rolling correlations
suggest this may be the effect of outliers.

▶ Respondents’ predictions show a relatively high correlation with data readings a year later.
Analyzing the data presented by the survey respondents can be an effective tool for predict-
ing future trends. Such data was available for the manufacturing and retail sectors. Calcula-
tions reveal that the correlation of economic data with actual YoY situation changes, delayed by
12 months, gives a 40% correlation, with a high degree of statistical significance.

CEE Economic Monthly • January 2024 15

Energy costs hardly impact business surveys

69%
▶ Rising energy costs constitute an increasing share of the total cost of doing business. The
energy crisis has increased interest in the energy market among companies, especially in ener-
gy-intensive industries. Changes in fuel and electricity prices correlated with business surveys
increase of the among enterprises. In the text, we summarized an overview of energy prices and their impact
cost of energy
on business climate surveys.
consumption
at non-financial
enterprises ▶ Energy costs are a greater burden for firms. The cost of energy (electricity, heat, gas) at non-
in Poland in financial enterprises rose from PLN 92.4 bn in 2021 to PLN 156.5 bn in 2022, an increase of 69%.
2021-2022 In the first quarter of 2023, energy costs amounted to PLN 50.4 bn, compared to PLN 34.9 bn
a year earlier.

59% ▶ The share of energy costs in total costs rose above 3% for the first time since 2014. It amount-

share of Polish ed to 3.3% in 2021 and 4% in 2022. PEI’s survey indicates that rising energy and raw materials
companies prices were a huge barrier for businesses in Poland in 2022. 68% of companies declared that the
indicating that increase in fuel prices had a big impact on business. Only one in six companies reported that
the energy costs rising costs of electricity or energy raw materials were not a significant barrier to doing business.
barrier hinders
operations to
a great or very ▶ High energy prices especially hurt the manufacturing sector. In December 2022, 69% of
great extent in firms highlighted it as a barrier to doing business. Energy prices are one of the three most
December 2023 important barriers according to Polish businesses. 59% of companies in Poland indicated that
energy costs have a huge impact on their functionality, 17 percentage points less than the re-
cord high level from July 2022. The Business Climate Index (MIK) increased from the record
low of 93,3 points in August 2022 to 106,2 points in December 2023, in parallel with decreasing
electricity prices (-71%).

Figure 6.1. Nominal energy costs in companies Figure 6.2. Share of Polish companies for which
in Poland (bn PLN) rising energy, fuel and raw material prices are
of high or low importance in doing business (%)

180

160
Fuels (petroleum products, 5087
diesel, LPG, others)
140

120

100 4895
Electricity
3263
80

60

40 2077
Energy raw materials
20
995
0 0 10 20 30 40 50 60 70 80
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Q1 Q2-Q4 Total Big impact Small impact

Source: GUS/Statistics Poland. Source: PEI.

CEE Economic Monthly • January 2024 16

Figure 6.3. Electricity price and business climate Figure 6.4. Share of Polish companies indicating
relations that the energy costs barrier hinders operations
to a great or very great extent (%)

130 1400 80

120 1200
75

110 1000
70

100 800
65
90 600

60
80 400

55
70 200

60 0 50
01/22
02/22
03/22
04/22
05/22
06/22
07/22
08/22
09/22
10/22
11/22
12/22
01/23
02/23
03/23
04/23
05/23
06/23
07/23
08/23
09/23
10/23
11/23
12/23

01/22
02/22
03/22
04/22
05/22
06/22
07/22
08/22
09/22
10/22
11/22
12/22
01/23
02/23
03/23
04/23
05/23
06/23
07/23
08/23
09/23
10/23
11/23
12/23
Business Climate Index MIK (left axis, 100 = neutral)
Electricity price (right axis, PLN/MWh)

Source: PEI and TGE. Source: PEI.

-17.2 ▶ Sentiment in German business has also dropped due to energy issues. Complex problems in
the manufacturing industry in Germany, including a huge dependency on gas imports, caused
Manufacturing a decrease in production. In manufacturing, the Ifo Business Climate Index fell noticeably to
Climate Index
-17.2 points in December 2023, down from 21.2 points in 2021. Energy-intensive industries are
in seasonally
adjusted balances having a particularly tough time, despite electricity prices stabilizing at around the 100 EUR/MWh
in Germany in level, which is still almost 2 times more than before the energy crisis.
December 2023

Figure 6.5. Relation between German electricity prices and business climate

40 500

30
400

20
300

10

200
0

100
-10

-20 0
01/21
02/21
03/21
04/21
05/21
06/21
07/21
08/21
09/21
10/21
11/21
12/21
01/22
02/22
03/22
04/22
05/22
06/22
07/22
08/22
09/22
10/22
11/22
12/22
01/23
02/23
03/23
04/23
05/23
06/23
07/23
08/23
09/23
10/23
11/23
12/23

Manufacturing Climate Index (left axis) Business Climate Index (left axis) Electrcity Prices (right axis, EUR/MWh)

Source: Ifo and Ember.

CEE Economic Monthly • January 2024 17

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The Polish Economic Institute
The Polish Economic Institute is a public economic think tank dating
back to 1928. Its research primarily spans macroeconomics, energy
and climate, foreign trade, economic foresight, the digital economy
and behavioural economics. The Institute provides reports, analyses
and recommendations for key areas of the economy and social life in
Poland, taking into account the international situation.

This publication is for information purposes only and does not constitute investment advice. Efforts have
been made to ensure that the forecasts presented are as accurate as possible; however, the information in
the publication is not binding, and the Institute and the authors of the publication are not responsible for
investment decisions made based on it.

© Copyright by Polish Economic Institute

Contact
Jakub Rybacki
Head of the Macroeconomics Team
jakub.rybacki@pie.net.pl
phone: 48 512 275 365