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Monday, April 14, 2008

Pessimism On The Industrial Ouput Front and Interest Yield Pressure on Public Spending

Businesses and Consumers Get More Gloomy

Hungarian businesses became more pessimistic in March as their expectations for industrial production worsened, market research company GKI said today. Overall economic sentiment index fell to minus 19.5, from minus 17.3 in February. The index is near a 12-year low of minus 21.2 recorded in October of last year. The business confidence index dropped to minus 7.9 from minus 6.7.

``The expectations of industry and service sectors, until now relatively optimistic, worsened while the more pessimistic construction and retail sectors improved,''

Economic sentiment has been near all-time lows since June 2006, when Prime Minister Ferenc Gyurcsany's government revealed a program to curb the budget deficit that has since weighed heavily on disposable incomes. Menahwile the GKI consumer confidence index meanwhile fell to minus 52.4 from minus 47.6 in February and minus 47.8 in January.

And Rising Yields Squeeze Government Spending

The cost of financing Hungary's budget spending will increase by more than 100 billion forint ($624 million) over the next few years simply due to the rise in government bond yields, Finance Minister Janos Veres said this morning.

The extra cost may be "several tens of billion forint" this year, Veres told a Budapest conference this morning. Yields have risen rose due to declining confidence that Hungary will be able to continue to cut its budget deficit after voters last month rejected some deficit-reducing measures, he said.

Hungary is working to narrow what used to be the European Union's largest budget deficit. The government is seeking to reduce the shortfall to about 3 percent of gross domestic product this year from a record 9.2 percent in 2006.

The yield on the benchmark three-year bond rose to as high as 9.83 percent on March 31 from 8.04 percent a month earlier. The yield was at 9.04 percent at 9:55 a.m. today in Bupapest.

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