By Boris Groendahl and Alan Crosby
VIENNA/PRAGUE, Nov 1 (Reuters) - The business climate in central and eastern Europe continued to wane in the quarter to September with foreign investors less upbeat about the region's economic outlook, a survey showed on Thursday.
The Reuters & OeKB CEE Business Climate index <REUTERSOEKB>, based on a poll of 400 international firms managing 1,400 companies in the region, fell to 55 from 60 two months ago, extending a drop from the previous poll. The results show that managers are still optimistic about growth prospects -- the index is the balance between positive and negative responses and shows optimism as long as it is greater than zero -- but reflect a more cautious assessment.
"Business in central and eastern Europe is good, but the high level at the start of the year could not be sustained," Austrian export financing bank Oesterreichische Kontrollbank (OeKB), which prepares the survey, said in a statement.
"In almost all countries, business climate has dimmed... Both the economic outlook and the business expectations for the companies on the ground are couched more cautiously, but remain optimistic overall.
"This indicates that the dynamics of economic growth in central and eastern Europe may slow down," it said.
The data comes two weeks after the International Monetary Fund (IMF) cut its growth outlook for the region slightly, saying exports were likely to slow as a result of weakening demand from western Europe reflecting global credit market woes.
The OeKB survey was done in September and followed an initial poll in January, published in April, and a second round in July, published in August. The survey will be held quarterly next year, with the first round's results published on March 3.
RUSSIA, SLOVAKIA LEAD
The business climate was most upbeat for Russia and Slovakia, both with a reading of 63 in the survey -- down from 78 for Russia and up from 62 for Slovakia in the previous poll.
Romania fell sharply in investors' favour, with its business climate index dropping to 59 from 75, reflecting concern by economists about rising risks to the Balkan country due to is gaping current account deficit.
Bulgaria, which like Romania joined the European Union at the beginning of the year, also recorded a sharp drop in business climate, according to the survey.
"Apparently the euphoria of foreign direct investors has cooled down since EU accession," OeKB said.
The business climate remains worst in Hungary, where the economic outlook index, at 17, is also the worst in the region and declined further since the first two polls.
"This is not the least because of the government's bugdet tightening package, which leads to a higher tax burden for companies but also -- given stagnating private consumption -- gives reason to expect revenue losses," OeKB said.
Among the business sectors, financial services -- dominated by western European banks and insurers -- remained the most upbeat in the region, followed by transport, and real estate.
Investor confidence fell markedly in the energy and utilities sector, which OeKB blamed on rising protectionism.
"The energy industry is among the strategically important sectors, where engagements by foreign investors are being regulated more strictly," OeKB said.
NOTE. Distributed exclusively on the Reuters System, the Reuters & OeKB Central European Business Climate Index is based on quarterly surveys of 400 international companies with regional headquarters in Austria, which manage 1,400 affiliate companies in 19 countries in central and eastern Europe.
((Prague Newsroom, phone +420 224 190 472; Editing by Gerrard Raven))
Keywords: ECONOMY EAST/CLIMATE
