Economic Sentiment Index Falls to Early 2023 Level

According to a survey conducted by GKI Economic Research Co. with the support of the EU, business expectations deteriorated markedly in June, falling back to their October/November 2022 level, their latest low. At the same time, consumer expectations improved. In June, employment expectations in the business sector deteriorated sharply; however, the fear of unemployment of households eased compared to May. Companies’ efforts to increase prices declined further, and consumers’ inflationary expectations also eased.

The outlook for the business sector deteriorated significantly in June, with confidence in the future falling in all four sectors surveyed. The contraction in demand due to high inflation was therefore having a strong negative impact. This was also reflected in the fact that companies’ efforts to increase prices continued to fall significantly. In June, the services confidence index fell to a 5-month low, the industrial one to a 7-month low and the construction and trade ones to a 38-month low. Although the perception of recent production in industry did not change, the assessment of incoming orders, inventories and production prospects also deteriorated.

In construction, satisfaction with output in the previous three months worsened significantly, while the assessment of incoming orders deteriorated

slightly. In trade, the assessment of sales positions and incoming orders deteriorated sharply, while that of inventories became only slightly less favorable. In services, the general business climate deteriorated slightly, but turnover expectations worsened significantly.

After four months of improvement, business propensity to hire deteriorated markedly in June. Once again, those planning to reduce their workforce outnumbered those planning to expand. The difference between these two proportions was smallest in industry (where the proportion of those who were pessimistic was barely higher than that of those who were optimistic) and largest in construction (where the pessimists were in the vast majority). At the same time, the fear of unemployment of households fell further to a 13-month low.

In June, the intentions of the business sector to raise prices fell significantly to their lowest level for almost seven years. Inflationary expectations of households declined in June, after strengthening in May, and were essentially back to their April levels. After five months of improvement, the assessment of the future situation of the Hungarian economy in the business sector dropped significantly in June to a level not seen since the Covid crisis. However, it continuously improved among households for the sixth month in a row. After the fall in May, the GKI consumer confidence index increased noticeably in June, and its value essentially returned to its April level. In June, households felt that their current financial situation and expectations for the following year were better than in May. The opinion of households on the possibility of purchasing high-value consumer goods also improved.