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Saturday, August 30, 2008

Hungary's Investments Remain Weak in Q2 2008

The level of investment in Hungary dropped by 2.1% year on year in the second quarter, indicating that those who imagine there is an economic upturn coming just around the corner may well have to wait yet awhile to see it. The investment rate, however, did improve slightly from the first quarter, ancd was up by 1.1%, according to seasonally adjusted figures.

The basica reason for the extremely weak investment performamce in Hungary is clear enough, the sharp drop in investment in the public sector, down 40% year on year in the April-June period, following the introduction of the government austerity package. The volume of public sector investment has fallen to a third of what it once was in just two year, and the public sector contribution to total investment in the national economy is now only 3.5%.

However public sector activity is not the only factor, since it is also important to bear in mind the continuing decline in the number of new homes. According to KSH data, there was a drop of 30% in occupation permits in the lastquarter when compared with Q2 2007, and this situation is clearly reflected in the numbers for the real estate, renting and business activities section.

There was also a 2.4% year on year drop in the volume of investment in manufacturing industry in Q2. Large retail chains, however, do keep expanding, despite the contraction in domestic consumption. Thus there was a 16.5% year on year growth of investments in wholesale and retail trade in the second quarter. There was also a minor boom in investment in machines, equipment and vehicles (up 10.5% year on year in Q2). Rising transport, storage and communication investments (up 21.6% year on year) showed a similar trend, while the volume of construction investment was down strongly (11.2% year on year).

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