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Thursday, January 17, 2008

Hungary Wages and Employment November 2007

Hungary's monthly average gross wage rose more than expected in November, making it even more difficult for the central bank to justify cutting what is currently the European Union's second-highest interest rate. Average monthly wages rose at an annual rate of 9.3 percent to 205,193 forint ($1,180), according to data released by KSH - the Budapest-based statistics office - earlier today.

Central bank policy makers, who will next discuss interest rates on Jan. 21, last month said the increase in inflation expectations, as reflected in wage developments, was a risk to price-growth targets. The central bank has kept the benchmark two-week deposit rate at 7.5 percent since September after two cuts earlier in 2007.

Private sector wages - excluding bonuses - rose 8.5 percent from a year ago. The pace of increase slowed from 9.7 percent in October. Public sector wages, on the other hand, increased from an 8.5% rate in October to a 14% annual rate in November, hence the jump in the average monthly figure.

At the same time net real wages (subtracting changes in the CPI from net wage increases) after falling sharply earlier in 2007 have now significantly stabilised.

Hungarian trade unions and business leaders on Dec. 21 agreed to increase wages by between 5 percent and 7.5 percent this year, following staements from the central bank that the agreed figure would be pivotal for rate policy. Central bank President Andras Simor four days earlier said an agreement of 6 percent would be consistent with rate-setters' forecasts. Basically the central bank will now probably adopt a wait and see approach, looking carefully at January's inflation and wage increase data before taking any decision on rate cuts. This, of course, is a big problem, since stagnant internal demand, and a deteriorating external environment mean that the Hungarian economy badly needs some stimulus.

On the other hand, despite the fact that unemployment has remained reasonably contained, employment creation is weak to negative, with the number of Hungarians in full time employment running at 2.75 million in November, 2.3 percent less than a year earlier. The government has shed 5.7 percent of its jobs in a year, reducing the number of public workers to 729,600. The apparent inconsistency between falling employment and steady unemployment is doubtless partly to be explained by the ongoing ageing of the Hungarian labour force.

Analyst Opinion

Raffaella Tenconi, Dresdner Kleinwort, London, as quoted in Portfolio Hungary

“The pick up in gross earnings was mostly the reflection of a negative base effect and a pick up in public sector wages. Private sector earnings rose by 7.6%yoy, down from 9% in October. Public sector income grew by 14%yoy, up from 8.5% in October."

“Earnings growth dropped by about 3 percentage points between October and November of last year as a result of changing in the timing of some bonus payments. Construction, real estate, renting and business activities remain the sectors experiencing the fastest wage growth within the private sector."

Excluding one-off payments, wages rose by 6.1%yoy, down from 6.8%. Private sector wages continued to grow rapidly, at 8.5%yoy, but moderating from 9.7%yoy in October.

“Net earnings (ex. tax payments) growth continued to recover, although adjusted for inflation earnings continued to fall in the private sector."

“Total employment fell by 2.3%yoy in October. Private sector jobs contracted for a fifth consecutive month and we expect this process to continue in coming quarters."

“It remains difficult to ascertain how much of the ongoing wage growth is due to the continuing whitening of the economy (more people declaring their full earnings) and how much is due to sticky inflation expectations."

“The outcome of the wage negotiations proved in line with the NBH assessment, but it remains to be seen whether these recommendations will be followed. Certainly, a weak labour market should keep wage pressures at bay. All in all, we expect the MPC to maintain a cautious stance in coming months, the next 25bps cut could come in late Q2 at the earliest."

Also we need to keep a close eye on what is happening in the stock markets at the moment. Yesterday Bloomberg ran this story:

Central European shares fell for a sixth day, led by OMV AG and PKN Orlen SA, the region's biggest refiners. Austria's ATX extended its drop from a July record to more than 20 percent, a common definition of a bear market.

The NTX Index of 30 companies in the region fell 4.2 percent to 1,716.37 at 1:08 p.m. in Vienna, heading for the lowest close in 10 months.

Austria's ATX Index lost 4.5 percent to 3,833.1, bringing the drop since closing at a record on July 9 to 23 percent. A bear market is widely defined as a decline of 20 percent or more in a 12-month period. Austria followed Poland, Singapore, Hong Kong, Sweden and Japan in entering a bear market after last year's U.S. subprime-mortgage collapse.

The Austrian banks are the most exposed should there be any large correction in central and Eastern Europe.

Update, Thursday Afternoon:

The same tonic continued today. According to Bloomberg:

Central European shares dropped for a seventh day, sending the NTX Index to a 10-month low. The Czech benchmark index entered a bear market, falling more than 20 percent from last year's high.

Komercni Banka AS, the third-largest lender in the Czech Republic, and PKN Orlen SA paced declines.

The NTX Index of 30 companies in the region lost 0.7 percent to 1,720.62 at 1:27 p.m. in Vienna as 18 stocks retreated, 11 rose and one was unchanged.

The Czech PX Index sank 1.6 percent to 1,545.50, bringing the drop since reaching a record on Oct. 29 to 20.2 percent. A bear market is widely defined as a decline of 20 percent or more in a 12-month period. In the region, the Czech Republic followed Austria and Poland, in entering bear markets after the collapse of the U.S. subprime-mortgage market last summer.

Poland's WIG20 Index retreated 0.8 percent and Hungary's BUX Index dropped 1.3 percent. Austria's ATX Index added 0.1 percent

As I say, this all needs watching very very carefully at this point. Could the correction be starting even as I write?

Friday, 18 January 2007: the sell-off continued for another day today, although Hungarian stocks actually rose slightly.

As Bloomberg report

Central European shares declined for an eighth day, the longest losing streak in two months. Erste Bank AG, Austria's biggest, and Komercni Banka AS led losses.

The NTX Index of 30 companies in the region declined 1.6 percent to 1,694.69 at 10.32 a.m. in Vienna, heading for the lowest close in more than 10 months. The measure has lost 8.2 percent this week.

Austria's ATX Index dropped 1.7 percent, the Czech PX Index slid 3.3 percent and Poland's WIG20 Index retreated 1 percent. Hungary's BUX Index added 0.3 percent.

Benchmarks in Austria, Poland and the Czech Republic dropped more than 20 percent from last year's highs this week, the common definition of a bear market, amid concern that the U.S. will enter a recession.

Erste Bank slid 2.1 percent to 39.05 euros today, while Komercni Banka, the third-largest in the Czech Republic, slumped 4.3 percent to 3,496 koruna. Raiffeisen International Bank Holding AG, Russia's biggest foreign lender, lost 1.6 percent to 79.68 euros.

Telekom Slovenije d.d. fell 1.9 percent to 340.20 euros. The shares have dropped 10 percent since Jan. 14, when the Slovenian government extended the auction of a 49.13 percent stake in its national phone company for a third time, with two bidders left.

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