Business confidence in the V4 has declined further than the rest of Europe – but why?

The OECD’s Business Confidence Index (BCI) is based on opinion surveys across its 38 member countries and is updated on a monthly basis. It’s always worth keeping an eye on because it gives a sense of changing sentiment which can, in turn, predict future trends in economic activity.

About two thirds of the OECD’s member countries are in Europe; eight of them are in Central & Eastern Europe: the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. While the BCI doesn’t allow you to assess relative levels of business confidence, it does show where business confidence in each country stands versus the long-term average. The long-term average is given a score of 100. Numbers above 100 suggest higher than average confidence in near future business performance; anything below 100 indicates pessimism amongst the business community.

The most recent numbers available are for April, and four of the bottom five spots in the European ranking are filled by the V4 countries:

Our immediate reaction when seeing this was to conclude that the war in Ukraine must be, at least partly, responsible for this. But it doesn’t seem so based on the numbers.

First, if Ukraine were driving this, you would expect the Baltic States to be around the bottom of the table as well – but Estonia and Lithuania are in the top four countries on this list.

Also, with the exception of Hungary, business confidence levels have not fallen markedly in the V4 countries compared with the rest of Europe since the start of the year:

What, then, is causing this?

It’s not, apparently, the fear of policies being introduced which will make life harder for business. Based on PwC’s 2022 Global Risk Survey, which has just been published, while business leaders in CEE are more concerned than their global peers about the risks facing business today – with 36% forecasting a decline in revenue, compared with just 15% globally (which tallies with the BCI results) – they are less concerned than executives from other parts of the world about policy changes.

So what else?

We’ve been debating this internally. Is it the worsening recruitment and retention problem, which is never far from business leaders’ minds in this region? Are the ongoing challenges of the automotive industry, which is more than just another business sector in CEE, affecting things?

We aren’t sure…

What are your thoughts?