Consumer Expectations Significantly Deteriorating

After May, GKI’s economic sentiment index fell by five points in June as well to its 15-month low. According to the empirical survey conducted by GKI Economics Research Co. with the support of the EU, business expectations fell again by three points in June, while consumer expectations dropped again by around 10 points compared to the previous month. The last time households were more pessimistic than now was at the outbreak of the COVID-19 pandemic.

In the business sphere, expectations in all sectors deteriorated to a greater or lesser extent, especially in trade and services. Production expectations and the assessment of incoming orders in industry weakened compared to May, and that of stocks improved slightly. The assessment of production in the last period remained unchanged, while that of export orders improved. After May, expectations of construction companies deteriorated in June as well, both in the structural and civil engineering sectors. Satisfaction with production and orders in the previous three months became noticeably less positive.

The trade confidence index fell sharply after three months of slight increases. The assessment of sales positions and inventories deteriorated moderately, while that of expected orders fell to a one-and-a-half year low. The services confidence index fell for the second month in a row after a big improvement in April. The evaluation of the general business climate and the turnover in the last period deteriorated, and sales expectations weakened.

In June, the business sector’s propensity to hire deteriorated in all sectors except services. Compared to its April peak, it declined in all sectors. However, there are still more companies planning to increase the number of employees than to reduce it, except in trade. The fear from unemployment of households continued to rise in June after May, although to a lesser extent than in the previous month. Companies’ efforts to raise prices were decreasing, albeit very slowly, for the second month in a row in all sectors except industry. Even so, well over half of the respondents (nearly three quarters of them in trade) were preparing to raise prices. However, inflationary expectations of consumers continued to strengthen slightly in June. Since the outbreak of the Russian-Ukrainian war, both companies and households considered the future state of the Hungarian economy as extremely pessimistic, and the government’s balance-improving package probably contributed to this in June.

The GKI consumer confidence index continued to deteriorate almost as much in June as its significant fall in May, and went to a lower level than its all-time average or the average of the last ten years. Households’ assessment of their own financial situation became even more pessimistic in June than in May. Households’ perception of their own ability to save for the future was weakening steadily at an almost monthly pace for the fourth month in a row, from an all-time record high in February. In June, households also found the possibility of purchasing high-value durables to be deteriorating.