GKI sentiment index



Improving business and deteriorating consumer expectations



In July GKI's economic sentiment index adjusted for seasonal effects remained unchanged. According to the survey conducted by GKI Economic Research Co. (www.gki.hu) with the support of the European Union, this is the combined result of improving business expectations and deteriorating consumer ones. Expectations of households that have been rising nearly continuously since May 2009 and improved significantly early this summer due to the parliamentary elections of last April reached their peak just before the fall of the exchange rate of the Hungarian forint early June. In July the value of the index dropped to below the level of May. Nevertheless, business expectations continued to grow and the level of the index is already higher than in September 2008 (i.e. before the Hungarian exchange rate crisis).

Concerning the business sphere, in July expectations improved significantly in trade and services, they were up slightly in industry and stagnated in construction. In industry, the anticipation of production for the next three months improved and the assessment of stock of orders turned better as well. At the same time the level of stocks of own production grew as well. In construction the confidence index decreased inside the margin of error, i.e. practically stagnated in July, just as it did one month ago. The assessment of production and that of stock of orders concerning the past three months deteriorated. The average duration of the production period supported by contracts was 3.1 months in July 2010, that means it was lower than three months ago (3.5 months) and than a year ago (4 months). Expectations in trade improved significantly in July. Mainly the assessment of sales positions improved, but that of expected orders and the average level of stocks turned better as well. In services, the confidence index that had been improving since January dropped in May but since then it continued to grow significantly. In July the opinions on the turnover for the next three months improved the most, but the assessment of the state of the business got significantly better, too.

Intentions to employ became somewhat better in industry and construction. In industry the number of those planning additional employment was in a slight majority compared to those with plans of a cut. In services the improvement was smaller and in trade intentions remained unchanged. Fear from unemployment increased slightly among consumers. In industry the same number of firms expected a price rise and a price reduction, whereas in construction the ratio of those planning a decrease in prices increased further. Significant price reduction is expected in services. Households' inflationary expectations increased sharply.

The assessment of the prospects of the Hungarian economy improved in industry and construction. In industry the ratio of optimists and pessimists got close to each other. In trade, services and among households macroeconomic expectations deteriorated slightly.

GKI's confidence index of consumers increased markedly until June 2010 following the bottom recorded in April 2009. Thus, the index exceeded significantly its pre-crisis level and moved close to what was recorded during the parliamentary elections four years ago. However, in July it decreased to below the level of May. The biggest drop was in the 12-month prospects of the Hungarian economy but the assessment of consumers' own financial position and that of short-term saving capacity turned more downbeat as well.

It is interesting to observe that consumers had generally considered their own financial position and the overall state of the Hungarian economy better concerning the future for more than 12 months, whereas the assessment of the past improved significantly less (see diagram). However, in July the optimism over the future weakened concerning the consumers' own financial position and the overall state of the Hungarian economy, too.


Explanation to the methodology:

In line with the methodology used by the EU, GKI surveys the expectations of industry, trade, construction and services in the calculation of its business confidence index. (As far as services are concerned, similarly to the practice of the EU, companies of the financial and public sectors have not been included in the surveys yet.) GKI publishes seasonally adjusted data by using appropriate mathematical methods to filter out the discrepancies caused by seasonal effects (e.g. differences in weather conditions between winter and summer, increased demand before Christmas, lower output because of summer vacations).

The consumer confidence index is calculated from responses given to questions concerning the actual and the expected financial position of households, the actual and the expected economic situation of the country, and the purchase of higher value consumer durables.

The business confidence index is calculated from the responses of enterprises in industry, trade, construction and services given to questions concerning the state of business and expectations. The history of the subindex that reflects the expectations of services is shorter than that of other sectors. This kind of surveys started in 1998. Therefore the business confidence index for 1996-1997 had to be recalculated. This was made by using the mathematical correlation among the confidence indices of various sectors in the period after 1998.

The GKI economic confidence index is the weighted average of the consumer confidence index and the business confidence index.


GKI Sentiment Index and its components, 1996-2010

Source: surveys of GKI Co.


Consumers' expectation on their own financial position and the general state of the economy, 2007-2010
Consumers' financial position
The general state of the economy
Source: surveys of GKI Co.

1996.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-45.1-48.8-45.9-44.8-50.5-51.5-46.8-41.9-42.8-40.0-34.9-39.6
Business confidence-7.8-3.9-6.6-7.1-6.8-9.4-9.8-7.0-5.4-3.1-3.8-5.0
GKI-composite index-17.5-15.6-16.8-16.9-18.2-20.4-19.4-16.1-15.2-12.7-11.9-14.0
1997.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-40.0-41.1-39.1-41.6-39.4-34.7-33.8-30.3-25.6-27.2-23.0-26.1
Business confidence-5.5-4.8-1.7-2.1-0.31.41.02.73.35.96.15.7
GKI-composite index-14.5-14.2-11.4-12.4-10.5-8.0-8.1-5.9-4.2-2.7-1.4-2.5
1998.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-22.0-19.0-15.6-18.6-19.9-10.4-8.2-9.8-14.1-13.9-16.3-22.7
Business confidence5.04.64.75.54.93.72.2-0.9-2.6-8.9-9.6-8.9
GKI-composite index-2.0-1.6-0.6-0.8-1.60.1-0.5-3.2-5.6-10.2-11.3-12.5
1999.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-22.0-19.7-22.8-28.5-29.6-28.9-35.5-32.9-30.4-27.1-25.5-29.9
Business confidence-8.3-12.6-11.9-12.7-14.8-10.3-6.7-7.8-7.3-5.7-4.7-3.1
GKI-composite index-11.8-14.4-14.7-16.8-18.6-15.1-14.2-14.4-13.3-11.2-10.1-10.1
2000.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-25.9-28.1-29.2-31.2-28.9-30.9-33.0-30.4-32.6-29.6-30.7-26.6
Business confidence-5.6-4.3-5.2-0.80.2-0.91.1-0.1-2.1-0.90.6-1.5
GKI-composite index-10.9-10.5-11.4-8.7-7.4-8.7-7.7-8.0-10.1-8.3-7.5-8.0
2001.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-25.2-23.2-23.4-20.9-21.2-22.0-19.9-20.9-20.7-19.3-16.6-15.1
Business confidence-1.4-1.71.8-0.4-2.8-3.1-7.1-5.3-7.5-9.1-11.0-10.9
GKI-composite index-7.6-7.3-4.8-5.7-7.6-8.0-10.5-9.3-10.9-11.7-12.4-12.0
2002.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-15.6-13.9-5.4-0.6-2.1-1.8-1.30.5-3.5-3.5-8.7-7.8
Business confidence-10.1-6.9-4.3-9.3-4.7-6.2-6.2-4.4-6.9-4.9-6.4-7.1
GKI-composite index-11.5-8.7-4.6-7.0-4.1-5.2-4.9-3.1-6.0-4.5-7.0-7.3
2003.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-12.2-21.9-22.5-19.2-21.4-23.5-25.1-32.7-32.4-32.3-31.0-31.1
Business confidence-12.0-11.0-13.1-11.4-8.4-13.4-10.2-9.3-11.0;-9.8-5.3-5.3
GKI-composite index-12.1-13.8-15.5-13.4-11.8-16.0-14.1-15.4-16.6-15.7-12.0-12.0
2004.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-34.6-34.9-35.5-33.8-29.1-26.0-26.7-27.7-25.8-26.5-26.1-24.3
Business confidence-8.6-9.9-7.3-2.9-7.0-4.3-7.8-6.1-7.0-11.7-16.4-14.5
GKI-composite index-15.4-16.4-14.6-10.9-12.7-9.9-12.7-11.7-11.9-15.5-18.9-17.0
2005.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-21.7-22.5-26.0-30.9-32.7-35.2-28.9-27.8-26.1-27.8-23.4-18.7
Business confidence-12.7-16.1-17.4-17.0-17.4-17.0-14.2-15.2-8.8-9.3-8.5-8.5
GKI-composite index-15.0-17.8-19.6-20.6-21.4-21.7-18.0-18.5-13.3-14.1-12.4-11.2
2006.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-16.3-10.3-11.8-10.5-24.4-43.3-48.2-46.9-51.1-49.0-51.8-52.9
Business confidence-8.6-9.4-5.4-3.7-2.2-4.4-5.8-8.8-4.2-7.3-6.7-9.7
GKI-composite index-10.6-9.6-7.1-5.5-8.0-14.5-16.8-18.7-16.4-18.1-18.4-21.0
2007.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-53.5-53.7-51.9-52.0-51.3-48.0-47.7-47.2-49.3-51.0-53.6-47.1
Business confidence-7.9-5.8-2.9-4.4-4.6-4.0-5.3-5.0-5.4-10.7-6.8-7.0
GKI-composite index-19.8-18.2-15.6-16.8-16.7-15.4-16.3-16.0-16.8-21.2-19.0-17.0
2008.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-47.8-47.6-52.4-55.4-52.3-46.1-42.9-43.5-42.5-54.0-56.7-60.8
Business confidence-9.7-6.7-7.9-10.9-7.3-10.0-8.1-8.1-9.3-14.8-25.1-28.2
GKI-composite index-19.6-17.3-19.5-22.5-19.0-19.4-17.1-17.3-17.9-25.0-33.3-36.7
2009.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-66.1-68.5-70.0-72.3-68.3-64.3-63.1-59.8-56.9-50.8-51.9-50.1
Business confidence-30.5-34.0-37.7-37.0-30.4-29.0-25.4-22.8-21.5-18.4-18.9-16.7
GKI-composite index-39.8-43.0-46.1-46.2-40.3-38.2-35.2-32.4-30.7-26.8-27.5-25.4
2010.
I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.
Consumer confidence-49.1-47.5-41.2-37.0-28.7-23.4-29.3
Business confidence-14.2-13.6-10.7-10.2-8.8-9.2-7.1
GKI-composite index-23.3-22.4-18.6-17.2-14.0-12.9-12.9