The GKI economic sentiment index fell by an unprecedented extent of almost 30 points, apparently due to the economic effects of the COVID-19 epidemic. The business confidence index declined by about 25 points and the consumer one by nearly 40 points. Although during the global economic crisis, in the first half of 2009, expectations were already much more pessimistic, the GKI economic sentiment index has never fallen by more than 10 points in a single month. (See the interactive Vizzu graph below showing the course of previous crises as well.)
The coronavirus epidemic is destroying the operating environment of the construction industry. According to a joint survey by GKI and Masterplast, after the crisis is over, the prospects for home renovation and modernization will clearly be more favourable than home construction. Due to expected residential caution, the need for smaller renovations may increase rather than buying a new home that is a much larger investment.
In the current situation, GKI considers it difficult to make any detailed forecasts. Therefore, it only undertakes to present the possible main trends based on two scenarios. The COVID-19 is already a worldwide pandemic; however, its depth and duration are completely uncertain. While the Chinese economy is starting to show signs of recovery, COVID-19 is now spreading in Europe, and strict measures are being introduced to restrict the movements of people. The general downturn in the world’s stock exchanges, with occasional positive corrections, illustrate a climate of general fear and uncertainty.
Surprisingly, the GKI economic sentiment index dropped hardly in March, business expecta-tions worsened slightly, and consumer ones remained unchanged. This is obviously due to the fact that the survey, conducted by GKI (www.gki.hu) with the support of the EU, was con-ducted at the usual time, between March 1 and 8 for consumers and between March 5 and 13 for businesses, before the coronavirus emergency announced on March 11. However, for the first time in six and a half years, business expectations became again negative, meaning that slightly more companies expected the future to be worse than good. On the other hand, the assessment of the Hungarian economy’s prospects plummeted similarly as they did in Octo-ber 2008.
The Hungarian economy expanded by 4.9 per cent in 2019. It was the second fastest growth rate in the EU after Malta, almost 3.5 percentage points higher than the EU average of 1.5 per cent. If the growth rate will be 3.5 per cent in 2020 as forecast by the Ministry of Finance after taking into account the expected slowdown, the Hungarian growth requirement set by the government of at least 2 extra percentage points compared to 1.4 per cent in the EU can be achieved. At the same time, macroeconomic equilibria are worsening, inflation is accelerating, and the forint is falling spectacularly. The true extent of the short- and long-term effects of the coronavirus cannot be assessed yet.