Analysis of the Economic Sentiment Indicator (ESI) and Business Expectations in the European Union, Particularly in the Countries of Carpathian Region and Ukraine

Abstract

Traditional analytical studies tend to exhibit a degree of subjectivity, as they depend on the analyst's perspective regarding the dynamics of the analyzed indicators. To achieve objectivity in comprehensive macro- and microeconomic analyses, it is essential to incorporate indicators that reflect the sentiments and expectations of market participants, namely businesses and consumers. One such indicator is the Economic Sentiment Indicator (ESI). This article analyzes the ESI of the European Union as a whole and across individual countries. Special attention is given to the analysis of the Carpathian region countries within the European Union (Hungary, Romania, Slovakia, and Poland), which are Ukraine's closest neighbors and strategic partners. The study also includes an analysis of Ukraine’s Economic Sentiment Indicator, along with several business confidence indicators, such as the Business Confidence Indicator in Manufacturing, the Business Confidence Indicator in Construction, the Business Confidence Indicator in Retail Trade, the Business Confidence Indicator in Services, and the Consumer Confidence Indicator. The European Economic Sentiment Indicator has long been in pessimistic territory, that is, below 100 points. A worrying sign for the European Union's economy is that expectations are the worst in traditionally high-developed economies, such as Germany, France, Austria, and Italy. The research shows that the Economic Sentiment Indicator sometimes more accurately reflects the real stage of the economic cycle than macroeconomic indicators. The values of the Economic Sentiment Indicator in the Carpathian region countries of the European Union are somewhat higher than the EU average. Sentiment in these countries correlates with GDP growth over the past year. Where GDP growth has been sustained, ESI levels are the highest, as in Romania and Slovakia. Countries where GDP growth has been insignificant or has declined are in the pessimistic ESI zone (Poland, Hungary). Despite the challenging economic situation, Ukraine’s Economic Sentiment Indicator shows positive dynamics and has remained in optimistic territory above 100 points since the second quarter of 2023, likely due to the preservation of positive GDP growth rates. Meanwhile, business confidence indicators are showing significant declines, particularly in Manufacturing, Services, and Construction sectors. The Business Confidence Indicator in Retail Trade is the only one among business confidence indicators that remains in positive territory. Consumer sentiment is even worse than business expectations, with the Consumer Confidence Indicator at historic lows. Analyzing the Economic Sentiment Indicator provides a comprehensive approach and enables more informed conclusions in financial analysis of companies, investment analysis, and macroeconomic assessments.