The report attributed the fall in confidence to jitters before Hungary’s April elections and expectations of rising interest rates. SMEs also said they were counting on higher taxes in the coming year.
The index’s main component, which measures expectations for monetary policy, fell 23 to -42 in Q1 2006 because of growing expectations of rate rises. SMEs said they anticipated corporate lending rates to increase 1.5 percentage points. In the previous five quarters, they said they expected rates to rise 0.6 percentage points on average.
About 51% of SMEs said they expected the forint to weaken, more than in the previous quarter. The component of the index measuring the government’s economic policy fell 6 to -18 in the first quarter.
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