MFB INDICATOR - Winter 2009





Summary results of MFB Zrt.'s corporate survey



Following on from June 2009 the Hungarian Development Bank (MFB) has prepared its biannual business survey in December 2009 for the second time. Based on the answers given to 65 questions by 483 companies representative of the Hungarian business sector in terms of size, regional position and sectors, we analysed the opinions and expectations of Hungarian firms on macroeconomic and market trends as well as their funding needs and investment plans. This enabled us, for the second time, to compile four sub-indices pertaining to economic trends going forward, along with the MFB INDICATOR which summarises all of the responses into one single indicator. The corporate survey and the analysis were prepared by Álmos Mikesy and Zsolt Szabó under the leadership of Prof. Péter Gál, chief economist of the Bank.


On the one hand this empirical survey provides a comprehensive picture of the most important macroeconomic and market trends affecting Hungarian corporates as well as their funding and investment requirements, what they have experienced in these respects, their plans for the future and the obstacles to gaining access to funding; on the other hand it gives an opportunity to evaluate the direction of any changes and the dynamics of relevant processes. Based on an evaluation of the key correlations between companies' decisions and an assessment of their expectations, the MFB INDICATOR and the sub-indices enable us to forecast economic processes and thus provide important information to substantiate decisions related to development policy, as well as adapt the products of the Hungarian Development Bank to suit market demand. This second publication of the MFB INDICATOR not only provides an opportunity to reveal the static assessments of economic participants but also to draw conclusions from the changes in economic expectations. This means the MFB INDICATOR fulfils similar roles to international economic indices.











November 2009








June 2009











The MFB INDICATOR currently sits at 42.7 points, which is 4.5 points higher than in the June survey and is substantiated by the benign development in many internal and external factors for businesses. However, on a scale of 0-100, a reading of less than 50 points still indicates that both the current situation of the Hungarian economy and future trends do not bode well.


The Macroeconomic index (33.3) still points towards an economic recession over the coming year, but it does demonstrate a major improvement compared to the June survey: moving 12.1 points higher than the previous result of 21.2 points. The current reading, however, is still the lowest of all the MFB INDICATOR sub-indices.

  • While remaining one of the biggest obstacles for businesses, the change registered in the index shows that macroeconomic processes in the last six months have tended to improve. Corporates expect GDP to contract by 1.1% on average in the 2010 calendar year. This falls into line with the MFB's own macroeconomic forecast, which foresees a recession of 0.5-1.5%.
  • Considerable improvement has been observed compared to the summer survey, when domestic businesses estimated the economy would contract by 5-6% from June 2009 to June 2010 – not a calendar year.
  • The better assessment of macroeconomic conditions is fuelled by a perceived improvement in external factors impacting on corporate operations; only domestic demand was considered to be worse than six months ago by the companies in the survey.


The Market index sits at 39.9, i.e. companies are still banking on a marked drop in sales, though to a lesser extent than the contraction in GDP. The difference between the Macroeconomic and Market indices, which signals changes in the external environment for companies, has narrowed considerably over the last six months (from 16.5 to 6.6 points); this demonstrates that market outlooks have not improved at the same rate as macroeconomic conditions, i.e. Hungarian companies have yet to experience the bottom of the crisis and their prospects remain grim.

  • Major differences can still be perceived based on the sizes of businesses:
  • It is generally micro and small enterprises who believe their market position is less secure, but to a far smaller extent than six months ago.
  • 39% of micro-enterprises, 33% of small enterprises, 26.3% of medium-sized companies and 23.9% of large corporations reported that their market position had worsened compared to one year ago. The improvement in the market situation and outlook of large corporations is primarily being driven by better economic prospects on foreign markets: exports in this business category account for 33.5% of total sales revenue on average.


The Financing index (46.7) signals that almost half of businesses are planning to raise external funding in the coming twelve months: 22.6% probably and 26.9% definitely.

  • Compared to the 44.3 points registered six months ago this 2.4 point increase is partly attributable to the moderate rise in the need for external funding (7.4% more companies are planning along these lines than in the summer),
  • and partly to the marginally better (or not so negative) assessment of borrowing conditions.
  • The financial stabilisation of companies can be considered to have been relatively successful: compared to 48% six months ago, now only 20% are in need of external funding to cover their current expenditure.
  • Based on funding needs the differences have widened from a sector perspective but narrowed on a regional basis.
  • Looking at the sectors it is primarily agricultural businesses who intend taking out loans in the coming 12 months (65.8%), followed by industrial companies (52.8%), and firms in the services sector (44.3%).
  • There is no major difference between the three geographical regions as regards funding plans, which is due to the "convergence" of the Central Hungary region on the eastern and western parts of the country. The ratio of businesses in Central Hungary intending to make use of external funds has risen from 28.9% in June to 49.3%. The main reason behind this growth is that in this category there has been a similar rise compared to six months ago (from 21.3% to 33.6%) in those planning to use external funding to finance their developments planned for next year.
  • Improvements in all respects were observed compared to June in companies' assessment of borrowing conditions (on a scale of 1-5): the greatest improvements were noted in the difference between forint and foreign currency loan interest (+0.7), in exchange rate changes (+0.7), and in views on interest rates (+0.6). In terms of aspects taken into account when contemplating external funding, the importance of the loan term has increased (from 3.5 to 4.0).
  • This means that in comparison to our June survey the picture of how companies proceed when applying for loans has been nuanced slightly: in addition to own funds and the interest rate, the term of the loan which impacts on long-term business expenses has increased in significance, reflecting a change in corporate mentality and greater focus on long-term corporate thinking and planning.
  • Businesses are mostly planning to take out loans for development purposes rather than for working capital finance in the next 12 months, the former mentioned by 34.2% and the latter by 29.2% of those surveyed. This essentially means that the ratio from six months ago has been reversed (when the corresponding figures were 31.8% and 35.1%), and could be construed as a weak sign the economy is recovering from the recession.


The Investment index (50.8) signals that the majority of businesses are planning to carry out investments over the next 12 months, despite the adverse external circumstances and financing conditions.

  • Although the majority are still planning developments, fewer businesses are certain about their investments and more are now having doubts.
  • Compared to six months ago this index has risen by the smallest margin (back then it was 49.8), which suggests that companies have already conducted investments directly associated with the crisis, or they are still underway.
  • Another vague sign of life is that the most commonly mentioned investment objective is to modernise technology (54.3%), stabilise the market position (49.5%) and expand production/services (41.1%).
  • Due to the uncertain (market) prospects, however, they are playing a waiting game with new developments – especially SMEs.
  • The most companies planning investments are to be found in agriculture (65.8%), followed by industry (58.9%), and the services sector (49.5%). Looking more closely at agricultural firms, those involved in animal husbandry stand out (75% are planning developments in the coming 12 months), while in industry the main investment demand stems from food (71.5%), machine manufacturing (60%) and road vehicle manufacturing (58.9%) businesses.
  • Domestic demand represents a greater investment incentive for micro and small enterprises (3.5 and 3.1 on a scale of 1-5), than for medium-sized and large corporations (2.9 and 2.8). This is partly due to the fact that the SME sector focuses on domestic markets while exports account for the majority of operations at medium-sized and large corporations (totalling 26.7% of total sales revenue on average compared to just 11.7% for micro and small enterprises). On the other hand, micro and small enterprises experience fluctuations in demand more quickly and directly as the suppliers of larger companies.
  • Modernising technology is considered important mostly by agricultural companies (68.9%) and those engaged in industry (60.7%). Companies in the services sector on the other hand reckon expanding their scope of services will lead them out of the crisis.
  • Taking a geographical view, firms in Western Hungary are at the vanguard of introducing new technology (62.1%); this ratio in Central and Eastern Hungary is 49.8 and 52.5%. Over the next 12 months investment activity will come under pressure, not because of corporate investment cycles running out but mainly for reasons linked to the crisis (market uncertainty, declining demand, expensive loans).
  • Corporate investment plans will come up against an increasing number of obstacles: the importance of all detrimental factors has risen – mostly the limited supply of loans (+0.7), the high price of external funding (+0.5) and the crisis-induced drop in demand (+0.5) on a scale of 1–5.