In January of 2020, the GKI–Masterplast residential market indices for Budapest and Hungary stood at 6 and 7 points respectively. Budapest index decreased by just 1 point (within margin of error), the national index went down by 3 points compared to the previous survey (in October 2019). The capital index went down by 17, the other one decreased by 16 points compared to the survey made one year earlier. Thus, a relatively slight change on a quarterly basis means a significant decline on an annual basis.
The Hungarian economy expanded by a rate of around 5 per cent in 2019, one of the fastest in the EU. Although the October-November data do not yet indicate a slowdown, the deterioration in industrial expectations is a warning signal. The growth rate of construction slowed down markedly, whereas wage growth and retail sales accelerated. At the same time, macroeconomic equilibria were worsening, inflation accelerated, the forint fell spectacularly, the general government deficit went up and the current account turned to deficit. The spreading coronavirus is already exacerbating the global economy through its fear-inducing effect. GKI expects a GDP growth of around 3-3.5 per cent in 2020.
To a lesser extent than in December, the GKI economic sentiment index continued to decline in January, reaching its lowest level for more than three years. The current contraction is the result of worsening consumer expectations, as the decrease in business expectations was only minimal after its major fall in December. The GKI economic sentiment index and business confidence index have been on a downward trend for one and a half years, with the consumer confidence index fluctuating and stagnating; however, the latter also reached its one and a half year low in January.
In December, GKI’s economic sentiment index was slightly lower than in October, which had been the lowest level until then this year, thus falling to its three-year nadir. According to the empirical survey conducted by GKI (www.gki.hu) with the support of the EU, this was the re-sult of marked deterioration in business expectations as consumer expectations improved slightly. The trend was clearly deteriorating in business expectations in 2019, whereas that of consumer expectations was typically stagnant, with some monthly fluctuations.
The growth rate of Hungary’s GDP accelerated to around 5 per cent in 2018 and 2019, one of the fastest in the EU. Thus, the Hungarian growth rate exceeded all prognoses, including those of the EU and GKI.
The rapid growth can be attributed to the surge in EU transfers and the previously favourable global economic boom and later the improvement in industrial output and outstanding services exports as well as the measures stimulating domestic demand, including wage agreements and tax cuts. GKI underestimated the investment and export potential of the business sector.