After the contraction in November and December, GKI’s economic sentiment index re-bounded in January 2022 to its November last year level. According to a survey conducted by GKI Economic Research Co. with the support of the EU, business and consumer expectations also rose in the first month of the year, but while the former are lagging behind, the latter are much more positive than in November last year. However, compared to before the pandemic situation, business confidence is higher and consumer confi-dence is lower.
The trajectory of the Hungarian economy in 2021 was more favourable in terms of GDP growth than expected in the budget for 2021 amended at the beginning of summer. At the same time, equilibrium conditions turned out to be much worse than planned, with inflation and the general government cash deficit soaring, the forint weakening and the external balance turning into a significant deficit. A considerable part of the divergence can be attributed to the excessive use of demand stimulus policies, which can be linked to the elections. At the same time, the escalating conflict with the EU, which led to the withholding of transfers, as well as unfavourable developments in the global economy, such as the energy price hike and the related deterioration in the terms of trade, and global supply disruptions (e.g., chip shortages), also played an important role.
GKI’s economic sentiment index declined slightly in November. Business expectations continued to strengthen, whereas consumer ones weakened. According to a survey con-ducted by GKI with the support of the EU, business expectations are at a two-and-a-half-year high. Consumer expectations, on the other hand, fell at a rate rarely seen in a single month, bringing them back to their spring levels. All players in the economy expect pric-es to rise.
In October, after four months of near stagnation, GKI’s economic sentiment index picked up momentum and reached a two-year high. According to a survey conducted by GKI with the support of the EU, business expectations were last so favourable in May 2019, and consumer expectations rose back to their June level after a three-month decline.
In recent months, both the growth of Hungarian GDP and the rise in price levels have been faster than previously thought. The strained relationship with the EU is now causing economic losses due to delayed access to reconstruction funds and other EU resources. The confrontational EU policy of the government, its loose fiscal and income policy and the tightening of the central bank, which is mainly verbally strong, but actually manifests itself in the interest rate hikes, all point to a policy that is not sufficiently consistent, subordinated to short-term electoral goals and pushing balance of payments considerations into the background This is unlikely to change before the elections. However, the possible more serious consequences of the fourth wave of the pandemic, which has already begun, could entail a slowdown in the rate of growth and price increases now assumed.