Slower wage raises in the Hungarian private sector meant that the rate of wage increases in the Hungarian economy slowed significantly in March. The average gross wage increased by 9.9% in March compared to a 13.1% rise in February, the Central Statistical Office said today. Inflation risks from wages were thus reduced slightly in March - and especially in the area of the ex-bonus annual wage rise in the business sector, which the central bank considers crucially important, and which decreased from 10.4% growth in February to 7.7% in March. 
These result might well be thought to decrease base-rate hike expectations. This view is supported, among other factors, by the recent statements of vice-governor of NBH and Monetary Council member, Júlia Király, who indicated in a Reuters interview this morning that the base rate hike cycle will obviously reach its end sooner or later. This is clearly true, but it may well be significant that she is flagging this now.
Regular wage rises in the business sector are now the lowest since June of 2006. György Surányi, former NBH governor also expressed his doubts about the likelihood of double digit regular wage hikes in tha private sector in an interview published this morning.
The effect of the slowly decreasing inflation and the dynamic growth of net wages together led the real wage index (ie wage rises minus inflation) above zero in February. This index had been negative for quite some time now. In March, the annual increase of net wages, 8.7%, was slightly higher than the level of the annual inflation, 6.7%, which decreased a bit the real wage index in the last month. Between January and March 2007, real wages decreased by 0.7% on a yearly basis.
The number of workers employed increased to 2,747,000, up by 9,000 on February, but this level is still 1% lower than last March. In the public sector, lay-offs seem to have stopped. The number of public sector employees was back near 720,000, partly as a result of seasonal factors according to KSH. 
In January–March 2008, some 1 million 941 thousand people worked in the private sector and 715 thousand in the public sector. The staff number of budgetary institutions on the whole decreased by nearly 5.6% while in the private sector it practically stagnated.
In the private sector there were 1,944,500 people employed, an increase of only 0.4% on the number employed in March 2007.
Hungary At A Glance
Welcome to Hungary Economy Watch Blog. Below you will find the normal chronological blog posts. But first we would like to present some charts which provide background data which we hope will help the first time reader better assess and get to grips with the argument being presented here. Here you will find charts for Hungarian male life expectancy, fertility, quarterly GDP growth, inflation, household demand, retail sales, and import and exports growth. Please click on thumbnails for better viewing.
Eastern Europe can be discovered by reading my Hungary analysis:Just Why Is Hungary So Different From the Rest of the EU 10?The basic arguments being advanced here are that long term fertility and life expectancy do matter, since in the long run they condition the labour force and consumption patterns, and with these inflation and internal demand.
Above left you can see Hungarian ferility, and above right the evolution of the population median age, which are also key parameters, since they influence saving and consumption, and with these internal demand growth. On either side here you can see charts for inflationand quarterly GDP.
2008 Forecasts: The OECD in December revised their 2007 Hungary forecast down to 1.8%, and 2008 to 2.6%. These numbers are very hard to accept. I will be very surprised if we see calendar year 2000 as high as 1.8%, but more to the point 2.6% seems to be assuming a strong rebound, an assumption for which there is no real substantive evidence. In particular even to get what growth we have been getting in 2007 the Hungarian govenment has been running a deficit of around 6% of GDP. This is going to tighten yet further in 2008, so there is no supportive fiscal environment. And as I keep arguing, it is very hard to see a supportive monetary one. The IMF in their October World Economic Outlook also put a similar figure of 2.7%, while the EU commission in November 2007 came in with the same 2.6% as the OECD.
Perhaps the prize for the most exaggerated prediction here must go to GKI Gazdaságkutató Zrt, who argue that Hungary should expect the incredible annual growth rate of 3.5%. My own view is much more nuanced. I think I am reasonably confident in holding to my recession forecast for 2008, although of course, "recession" does not mean negative growth for the whole year (technically it is simply 2 consecutive quarters of negative growth), so we might then go on to see what, between 0.5 and 1% growth over whole year 2008 (and the only really doubt is whether the contraction starts in Q4 2007, or in Q1 2008). But it is what happens in 2009 and 2010 that matters really, and at this point so many variables are in play (and interrelated ones to boot) that I can only say I envy those who have the courage - or the temerity - to stick their necks out). And of course, if we get a large correction in the value of the forint, then all those carefully weighed and weighted forecasts will, without a shadow of a doubt, go straight and directly off into the bin.
Friday, May 16, 2008
Hungary Wages and Employment March 2008
Thursday, May 15, 2008
Hungary GDP Q1 2008
Hungary's gross domestic product grew by 0.3% quarter on quarter in the January-March period, according to first estimate figures adjusted seasonally and by calendar impacts, released by the Central Statistics Office (KSH) on Thursday. Year-on-year growth was 1.6%, according to unadjusted data and 0.9%, according to figures adjusted for calendar impacts. 
Eszter Gárgyán, Citibank, Budapest
“According to comments from the Statistical Office, strong industrial performance supported growth in 1Q, which in our view is likely to diminish in the coming quarters as external demand from the euro area weakens."
“We expect a moderate drop in public services (health care and education), while construction and services related to household consumption are likely to remain weak, as we only expect a slow and gradual recovery in household consumption based on the recent drop in consumer sentiment."
“Our view is that strong 1Q GDP data reflected the Ministry of Agriculture's estimates of a strong agriculture harvest (this reflects the methodology used by the Statistical Office)."
“According to our estimate, if weather conditions remain favourable total agricultural output growth could be close to 30% this year, which is likely to partly offset weakening external demand. Such an outcome would result in GDP growth above 2% in 2008. Our current full-year GDP growth projection is 1.9%, as we see downside risks to the export outlook."
“In our view is that although consumption is likely to recover only slowly, the inflation outlook is jeopardised by the second-round effects of supply-side shocks. Therefore, monetary policy decision-makers are likely to put more emphasis on underlying inflation trends and the private sector wage outlook than on growth figures."
Wednesday, May 14, 2008
Hungary Inflation April 2008
Hungarian inflation remained at more than double the central bank's target in April, keeping pressure on policy makers to raise interest rates further in the coming months. The inflation rate fell to 6.6 percent in April, down slightly from 6.7 percent in March, the statistics office (KSH) reported today. Consumer prices rose 0.3 percent in a month, compared with the 0.4 percent expected by the analysts. 
Core inflation, which strips out some volatile food and energy prices and is one of the central bank's most closely watched indicators, was 5.6 percent, compared with 5.3 percent in March. On the month, core prices were up 0.5 percent.
In April, the cost of food was 12.7 percent higher than a year earlier, the biggest annual increase since February 2007. Household energy inflation accelerated to 8.7 percent from 8.1 percent in March. Clothing prices increased 2.7 percent in the month.
The cost of health services dropped 18.2 percent from March and 12.6 percent from April 2007 after a referendum scrapped government-imposed fees on doctors visits and hospital stays.
Hungarian inflation has exceeded the central bank's 3 percent target since August 2006. The bank last revised its inflation forecasts in February, raising them to 5.2 percent for this year and 3.6 percent for 2009, up from a previous 5 percent and 3 percent.
Policy makers last month raised the benchmark interest rate to a three-year high of 8.25 percent and said they may lift it again as rising food and oil prices threaten to push up other costs like wages. The average monthly gross wage in February rose at an annual 13.4 percent rate.
Gábor Ambrus, 4Cast, London
“Hungarian Apr CPI came in at 6.6% y/y in line with mkt but above our call for 6.3% y/y. The structure is generally in line with our expectations, it is the food components that came in stronger than we had thought."
“Raw food up 1.9% m/m, processed food +1.4% m/m, a very sharp acceleration from Mar's reading. In raw foods it was pork that gave the big boost, indicating that the high feed prices are now trickling down to the meat chain."
Eszter Gárgyán, Citibank, Budapest
“The ending of hospitals and doctors' visiting fees decreased the headline CPI by 0.2 ppt (while other factors partially offset this development) in April, while excluding this one-off effect, seasonally-adjusted market service prices - which in our view are of primary importance to the trend in the inflation outlook - continued to rise to 6.2% YoY from 5.8%YoY in December 2007."
The forint traded at 249.52 per euro at 10:23 a.m. in Budapest, from 249.29 late yesterday. The currency reached a seven-month high of 248.68 yesterday. The yield on the benchmark three-year bond fell to 9.15 percent from 9.19 percent.
