E.Europe business sentiment plunges, seen worsening

                                
 * Thomson Reuters & OeKB index drops to -10 from 29
                                
 * 44 pct of firms expect CEE business conditions to worsen
                                
 * Worst swings in Russia, Ukraine; real estate, transport
                                
 * Banks keep up funding levels of E.Europe subsidiaries
                                
 
                                
 By Sarah Marsh
                                
 VIENNA, March 10 (Reuters) - Business sentiment in central
and eastern Europe plunged this winter, and almost half of
foreign firms operating there believe it will worsen in the next
six months, according to a survey released on Tuesday.
                                
 The quarterly Thomson Reuters & OeKB Central and Eastern
European Business Climate index <REUTERSOEKB> indicated foreign
investment would virtually disappear from the hard hit region,
but foreign-owned banks would not pull out en masse.
                                
 The survey fell to minus 10 in January, from plus 29 in
October, with the worst swings of morale in Ukraine and Russia
and in the real estate and transport sectors. When the index
falls below zero, it shows corporate morale is negative.
                                
 The poll of 400 international firms managing 1,400 companies
was taken as the global financial crisis ripped into emerging
Europe, hammering industry and causing currency, stock and bond
markets to plunge in a region previously considered one of the
safest in emerging markets. [ID:nL3726536]
                                
 A broad selloff of emerging European assets accelerated at
the start of the year, and the business climate turned negative
for every country surveyed by Austrian export financing bank
Oesterreichische Kontrollbank (OeKB), which compiles the index.
                                
 "Foreign direct investors judge the current business
situation of their operations there to be significantly worse
than in October," OeKB said. "Above all, future performance is
seen as anything but rosy: 44 percent expect a further worsening
of business conditions in the coming six months, compared to 16
percent in October."
                                
 The survey showed the business climate had soured most in
Ukraine -- still among the top scorers three months ago -- where
political turmoil has delayed policymaking to combat the crisis
and has stalled an International Monetary Fund bailout.
                                
 Business climate also dropped sharply in Russia -- equally
one of the best performers in the previous survey -- where a
drop in oil prices, lower demand for exports and a severe credit
crunch is hitting businesses.
                                
 The second lowest business climate reading was for Hungary,
which secured a $25.1 billion rescue loan from the International
Monetary Fund, the EU and the World Bank last October. Its
forint currency hit an all-time low against the euro last week.
                                
 By industry sectors, business climate was worst in the real
estate sector, which had fuelled the boom particularly the
Baltic states and Balkans over the last few years, and among
transport firms, which are strongly linked to exports.
                                
 
                                
 REDUCING EXPOSURE
                                
 Investment was falling across the region, the survey showed,
again sharpest in Ukraine and Russia. Bulgaria, the Czech
Republic and Romania showed the least drop, while the worst hit
sectors were real estate and industry.
                                
 "In view of the economic crisis and the sharply cooler
business climate in central and eastern Europe, companies have
become a lot more careful with their investment strategies,"
OeKB said.
                                
 Foreign banks, crucial for the region because they provide
practically the only remaining source of funds, did not appear
to be planning a mass retreat from emerging Europe and were
sticking to their long-term investment plans.
                                
 They were looking to expand 18 percent of eastern European
subsidiaries, while reducing financing for some 17 percent.
Investment funds for 65 percent of the emerging European units
will remain unchanged, OeKB said.
                                
 Among the sectors most keen on reducing exposure to eastern
Europe were the real estate and manufacturing sectors.
                                
 Some 43 percent of companies in the real estate sector,
which suffered one of the worse drops in business climate, and
30 percent of industrial companies aimed to withdraw capital
from emerging Europe, OeKB said.
                                
 The quarterly survey was first published in January 2007.
                                
 
                                
 FOR A TABLE OF DATA, DOUBLE CLICK ON [nLAG003287]
                                
 NOTE - Distributed exclusively on the Reuters System, the
Thomson 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.