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Pessimism Continues in the Industrial Sector

D&T
May 25, 2020

In May, presumably as a result of the lockdown easing measures announced by the government, almost all sectoral and consumer confidence indices increased and eliminated one-third of their dramatic fall in April. However, pessimism in industry intensified further.

GKI’s economic sentiment index rose by 5 points to -28 points after falling by 29 points in April, still reflecting pervasive pessimism. The consumer confidence index increased by more than 10 points and the business one by only 3 points. It is true, however, that the fall in April was also more pronounced in the business sector (37 and 25 points, respectively).

Within the business sphere, industrial expectations weakened the least in April. However, the decline, though not significantly, continued in May only in this sector. In particular, the assessment of the stock of orders, including exports, deteriorated significantly further, but the assessment of recent production and inventories also became more downbeat. However, the production outlook was assessed slightly better by respondents. Construction expectations improved slightly in May. The expectations of civil engineering companies, which became dramatically pessimistic in April, became much more favorable, whereas those of structural engineering firms even more pessimistic, and now the opinions of the two sub-sectors are no longer far apart.

The sector’s assessment of production in the preceding three months continued to deteriorate, and the evaluation of incoming orders remained essentially unchanged. The services and trade confidence indices improved the most in May. Although the assessment of sales positions continued to fall significantly, the assessment of expected orders improved even more strongly. The inventory level also was close to its March value. Among service companies, the assessment of the
state of business, turnover and number of employees in the recent period deteriorated further; however, the following months were considered more upbeat in all respects than in April.

Although the business sector’s intentions to employ improved slightly in May after plummeting in April, it is still very far from its March level. After about seven years, there are again more, and significantly more, companies planning to reduce their staff than those intending to increase them.

The worst situation is in industry. Strong fear of unemployment among households in April eased markedly in May; however, only one-fifth of the decline in April was eliminated, and this remained by far the most worrisome factor for consumers. Intentions to increase prices dropped sharply in industry, slightly in construction, and there were more companies in industry expecting prices to fall than to rise. In services, and especially in trade, however, the intention to raise prices strengthened, whereas consumer expectations of inflation eased, although they are
still far from their March level.

The assessment of the Hungarian economy’s prospects improved a lot in May, eliminating about three-quarters of its huge fall in April. However, it still reflects
deep pessimism. The assessment given by construction companies was the worst, and that of commercial companies the best. The assessment provided by consumers also improved significantly.

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