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Declining but Still Strong Pessimism

D&T
June 20, 2020

Although the GKI economic sentiment index rose by a larger extent in June than in May, it eliminated only less than half of its April fall. The consumer confidence index rose to a greater extent in May and the business confidence one in June. 

According to the empirical survey conducted by the Hungarian Economic Research Institute GKI with the support of the EU, in June, in the business sector the industrial confidence index eliminated only about one-third of its decline during the pandemic, and it is currently the most pessimistic sector. The assessment of recent and expected production improved, whereas the evaluation of total orders and inventories deteriorated further. However, the level of export orders was considered by respondents slightly better. The construction confidence index eliminated more than half of its April fall in May and June. The assessment of production in the preceding quarter and that of orders also improved significantly. The trade confidence index, too, recovered more than half of its April decline. Although the assessment of sales position deteriorated further, that of expected orders was considered better by respondents than in April. Services’ assessment of the past and future also improved. Interestingly, this sector was the most pessimistic in April, and the most optimistic in June.

Although the willingness of the business sector to employ improved significantly in May and June, those expecting a reduction are still a significant majority, both in industry and construction. The fear of unemployment of households eased substantially in May and June; however, only a third of the April deterioration was eliminated, and this is by far the most negative factor for consumers.
Intentions to raise prices increased slightly in all sectors with the exception of trade, similarly to inflationary expectations of consumers. The assessment of the Hungarian economy’s prospects improved spectacularly in May and June as well, almost reaching its pre-pandemic February value. (In this regard, pessimism intensified much in March.) The most negative opinion was given by companies in construction, the most positive one by those in trade and services. The assessment provided by consumers also improved significantly.

After its fall in April, the GKI consumer confidence index rose sharply in May and then at a slower rate in June, eliminating almost half of its fall in April during these two months, similarly to the business sector. Households’ assessment of their own financial situation improved the most, although it continued to be perceived as deteriorating. The shock had the least impact on households’ future savings capacity in April; and this indicator eliminated almost its entire decrease of the previous month in May. There was no change in this regard in June.

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