Business and Consumer Expectations Down Significantly

After improving by eight points in April, the GKI economic sentiment index fell by five points in May. This is a very significant fluctuation, but the May figure is about the same as a year earlier. According to the empirical survey conducted by GKI Economic Research Co. with the support of the EU, business expectations fell by around 5.5 points in May and consumer expectations by 9.5 points.

The institute says it is a return to the otherwise upbeat view of recent months, after the over-optimism of April. An exception is the assessment of the future of the national economy, which was worse in the last ten years only at the beginning of the Covid pandemic and during the austerity of the Széll Kálmán plan.

In the business sphere, confidence indices for all sectors except trade deteriorated to a greater or lesser extent. The industrial confidence index fell only slightly and overall remains optimistic. The evaluation of production prospects and inventories deteriorated. Although total orders were perceived to be higher, exports were perceived to be lower. Expectations of construction companies fell back to March levels. The opinion of structural engineering companies improved slightly, while that of the already more pessimistic civil engineering ones became more negative.

The assessment of production in the preceding three-month period improved markedly, whereas that of orders deteriorated. The trade confidence index has risen for the third month in a row, by small steps. The assessment of sales positions improved significantly in May, whereas that of expected orders and inventories deteriorated. The services confidence index remained above its March level despite a huge fall in May. Sales expectations deteriorated a lot.

In May, willingness of the business sphere to employ fell in all sectors compared to the April peak, but it is in line with the high levels observed in previous months. In all sectors, there are noticeably more companies planning to expand than to contract: most in industry, least in trade. The fear from unemployment of households increased again significantly after a fall in April. Companies’ efforts to increase prices are down marginally compared to April, but still much stronger than in March and they have not been equally strong in the last decade and a half.

The slowdown in the drive to raise prices is most noticeable in industry, but half of the companies are still preparing for this. In trade, this proportion is more than three-quarters. Consumers’ inflationary expectations rose again in May after their weakening in April. Since the outbreak of the Russian-Ukrainian war, both companies and households see the future state of the Hungarian economy as extremely pessimistic, and pessimism increased considerably in May.

Following a significant improvement in April, the GKI consumer confidence index deteriorated more sharply in May. Households assessed their financial situation much worse than in April. The assessment of their expected savings capacity has been gradually deteriorating month by month since the record in February. Households’ assessment regarding the possibility of purchasing high-value durables also deteriorated.