In September 2020, the first wave of COVID infections had relatively little effect on health in Central, Eastern, and Southeastern Europe (CESEE) but lockdowns, plummeting confidence and reduced exports severely affected regional economies. In a webinar on January 25th, Aron Gereben and Luca Gattini of the European Investment Bank (EIB) analyzed the findings of recent surveys of corporate investment and the banking sectors in CESEE countries. Julia Wörz of the Oesterreichische Nationalbank (OeNB) was discussant.

The 2020 EIB Investment Survey (EIBIS) found that the pandemic abruptly halted the positive investment trend in CESEE and that firms were more likely to be financially constrained than EU peers. The annual EIBIS gathers qualitative and quantitative information on investment, financing requirements, and the difficulties faced by about 12,000 companies across the EU27; Mr. Gereben presented the latest results: firms in the region are more likely than not to reduce investment in the coming year and to abandon previous investment plans. They cite uncertainty about the future as the main long-term barrier to investment, followed by shortages of skilled staff. Moreover, investment activities in CESEE tend to be more traditional than in the rest of the EU or the USA: while the proportion of firms implementing digital technologies is in line with the EU average, CESEE firms invest less in ‘intangible’ assets, especially R&D. Furthermore, only about half of the companies surveyed in CESEE, less than the EU average, have already invested or plan to invest in measures to tackle climate change.

The EIB Bank Lending Survey (BLS) indicates that as of September 2020 the banking sector in CESEE is quite resilient. The semi-annual CESEE BLS provides insights into banking sector activities and business expectations. Mr. Gattini presented the results. International banks continue to be committed to the region; no foreign parent has signaled a reduction in activities. Still, because of the pandemic, activities to increase capital have decelerated; CESEE subsidiaries and local banks report less demand for credit and tighter credit standards. The drop in demand for investment financing is particularly worrying, considering the green and digital challenges local economies must deal with. Nonperforming loan ratios have deteriorated, but less than was feared by respondents to the spring survey. Regulatory and policy measures have been crucial to keeping the economy afloat; in particular, public guarantee schemes in CESEE have been very effective in maintaining bank lending.

In discussing the survey results, Ms. Wörz used central bank data to confirm the health of banking sectors in the region. The riskiness and asset quality of loan books has improved since 2008, as have the stability of sources of financing and the degree of capitalization. She also touched on the OeNB Euro Survey, an annual inquiry about the euro holdings, saving behavior, and debt of private individuals in CESEE showing that this year public support programs also protected households from pandemic fallout.

Time, and future iterations of the surveys, will tell how much the dramatic second wave of the pandemic has affected CESEE economies in the subsequent fall and winter.

Laurent Millischer, Economist, JVI