SME Economic Growth Index of IBS-Policy Agenda Improves

The SME’s Economic Activity Index, as calculated by the IBS – International Business School – and Policy Agenda has increased again compared to the previous quarter. The figures show that company managers’ expectations are significantly more optimistic compared to the situation 3 years ago and there is hope that this atmosphere will hold in the longer run. However, investors are still not much inclined to assign large outlays to new projects and this calls for caution.

Post-recession economy improves

The SME-index continues to show an increase, and the expectations of company managers now surpasses the level seen at the beginning of 2011 when the second trough following the economic recession was observed. While in Q1 of 2014 this figure was 50.3% now it has reached 55.2%.

It is still to be answered and is a strongly debated issue among analysts where this optimism comes from. The economy has indisputably started growing, and as a result of the welfare measures introduced by the government (such as the cut back on the overheads), even the effective demand has picked up a bit of strength. Nevertheless, fundamental problems are still unsolved. Preconditions for a more powerful growth in the economy have yet to be ensured and we highly depend on external factors we can hardly influence.

When evaluating the figures it is also to be remembered that the survey coincided to a great extent with the finish of the election campaign period. Predictably, managers have formed their opinions based on their attitude towards the ideologies represented by the different political parties, that is, the trust that some of them had in economic growth caused the SME-index figures to rise, but the expectations of the managers who are sympathisers of the opposition caused a strong decline in the figures.

This process is clearly motivated by the principal issue of the present campaign, that is, whether the currently applied economic policy is really as successful as it is alleged to be or changes are needed.

Fewer expect decline, but the majority consider economic stagnation more probable

24% of business managers expect the situation of Hungary’s economy to worsen during the next six months. This figure is still more favourable than the one (28%) observed a quarter of a year ago, and it is nearly one-third of the 69% that was seen in December 2011. This clearly reflects that the fear of a relapse in the economy has diminished.

The proportion of those expecting the economy to grow in this quarter of the year was 43%, which is 11% less than the leap observed in the previous quarter. This fits in better with the tendency that was noted earlier. Along with the increase in the number of those expecting economic growth, the proportion of business managers expecting stagnation increased by 15%.

Improving solvency

4% of business managers do not expect any improvement during the next six months, that is the proportion of this group somewhat decreased compared to the previous quarter, when 36% expected the same to happen.

It may be cause for a certain degree of optimism that while at the end of last year only 12% considered an improvement of even 10% possible, now this rate is 21%.

The results of the survey in the previous quarter showed a dynamic improvement in the solvency that was expected by business managers in the SME sector; as many as 33% forecast improvement in the solvency of the company. Earlier, the expectations as regards liquidity had been much lower since 2011, and periodically a strong decline was observed, as, for example,  in the trough in September 2012 merely 8% of business managers could remain optimistic.

According to the figures of this present survey – presumably partly because of the SME credit programme launched by the banks last year – further improvement is anticipated. Now, 51% of business managers expect a more favourable financial situation compared to the previous quarter, and this is the most favourable figure observed over the past four years. The proportion of those expecting changes for the worse has dropped to 10%. The reason behind this process might partly be the fact that those undercapitalised small and medium-sized enterprises have gone bankrupt during recent years that had previously struggled with and proved to be unable to cope with declining demand and higher taxes due to the economic recession; consequently, the composition of the present SME sector has somewhat transformed.

This was a representative survey, based on the responses received from 500 company managers involved, to provide an overview regarding the economic activity of small and medium sized enterprises. The survey was performed in the period between 18 March and 29 March 2014 on an on-line company panel, and through telephone interviews. The calculation of the IBS-Policy Agenda SME Economic Activity Index is based on business survey index-calculation. Read more about the methods applied.