Hungarian businesses share outlook on local economy

Worsening business cycle indicators

Business sentiment has deteriorated to a lesser extent, while the perception of businesses of their financial situation and the intensity of operational investment has deteriorated significantly. As a direct consequence, the Barometer Index has fallen significantly to 50%.

The index dropped to 50% in the fourth quarter of 2023 from 55% in Q3, said Ákos Kozák, co-founder of the Equilibrium Institute, who reminded that the VOSZ Barometer Index was published for the fourth consecutive quarter, which allows to evaluate the whole last year in the light of the survey.

He recalled that in the first quarter of last year, when the survey debuted, the indicator was 61%, and that it was falling gradually throughout the year.

In the fourth quarter, declining purchasing power, a shortage of skilled labour and rising costs were the biggest problems for day-to-day business. Today, the problems of material procurement and high energy prices are no longer so acute, companies have essentially priced in these challenges and have adapted to them, said Kozák, who again drew attention to the risk of a deterioration in payment morale.

The VOSZ Barometer survey also asks business leaders how they rate the most important problems related to the country's economic situation. Inflation has been the most prominent problem facing the country for the fourth quarter running, but in the last quarter the country's problem map is much denser than ever before, with spontaneous mentions reaching or exceeding 10% frequency in eight categories. The lack of EU funding and unpredictability are notable here, the detailed figures show.

Many companies have met 2023 business goals

According to the Business Sentiment Index, companies can still be labelled as optimistic, with a 2 percentage point drop in the index value due to a decline in sales. The values of the components of the sub-index show that, for the year as a whole, expectations about the country's economic situation and perceptions of the payment morale are in the pessimistic range, below 50%.

In the last quarter, the share of those who think the economic situation could become more secure in the next quarter did not exceed 10%.

Two thirds of business leaders surveyed expect the general economic situation to be riskier,

said Kozák.

On a full-year basis, the survey showed that the highest proportion of entrepreneurs surveyed said they had achieved their business and financial plans for 2023. Ákos Kozák also highlighted that one third of companies indicated that their turnover could be 10% or less below target. The head of the Equilibrium Institute assessed these business figures for last year as positive.

The co-founder of the institute also spoke in detail about payment morale. Almost 45% of respondents said that the willingness to pay in the Hungarian economy has either worsened or is deteriorating.

Who will invest here?

The investment sub-index fell sharply over the last year, to 28% in the last quarter of 2023 from 49% in Q1. The further decline in the value of the investment sub-index is the result of firms with opportunities having already made their planned investments, so that no further investments were planned for Q4. By the fourth quarter, the proportion of businesses that had identified a business opportunity with leadership potential had fallen significantly, the survey found.

Labour force and earnings

Asked whether they would need to lay off workers over the next year, fewer responded yes in Q4, with 9% of SMEs saying they would have to respond to the situation by making redundancies. However, Kozák stressed that the very tight labour market and the low unemployment rate of 4% were a very strong support for the economy

"Do you plan to increase the salaries of your employees in the next year?" was the next question in the survey to entrepreneurs. In the last quarter, 74% of respondents said they did not plan to raise salaries, compared to 49% at the beginning of the year.

In summary, Ákos Kozák highlighted the positive aspects of last year: the business outlook remained in the positive optimistic range in all quarters, and respondents were able to carry out most of their planned investments.

Cover photo: Getty Images