tag:blogger.com,1999:blog-36596111.post8282213097713089255..comments2009-09-21T11:07:15.010+02:00Comments on Hungary Economy Watch: The NBH Cuts Interest Rates As Hungary Enters Its Second Recession In Two YearsUnknownnoreply@blogger.comBlogger6125tag:blogger.com,1999:blog-36596111.post-48696343772114135812008-12-15T14:30:00.000+01:002008-12-15T14:30:00.000+01:00OK, now I follow you. I think, btw, that most cbs ...OK, now I follow you. I think, btw, that most cbs have a huge communication problem right now, for all sorts of different reasons (in each case). Eg the ECB are relcutant to bring rates down too far at the moment, even though the old excuse - inflation - is rapidly disappearing out of the window. But then, they can hardly say we are willing to accept 2 million more unemployed in the eurozone to help the US get the CA deficit down, any more than the US Fed can say they would like a weaker dollar (in part to avoid deflation), but they would.<BR/><BR/>Have a good xmas,<BR/><BR/>EdwardEdward Hughhttps://www.blogger.com/profile/10384039867580949531noreply@blogger.comtag:blogger.com,1999:blog-36596111.post-88503118922274593672008-12-15T14:18:00.000+01:002008-12-15T14:18:00.000+01:00Understand. What I mean is the National Bank can't...Understand. What I mean is the National Bank can't really communicate anything else than exchange rate stability.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-36596111.post-50510571512952828082008-12-14T18:39:00.000+01:002008-12-14T18:39:00.000+01:00Incidentally, for once Ukraine are getting ahead o...Incidentally, for once Ukraine are getting ahead of the field, and my bet is the Russians (and who knows, even the Chinese) may not be far behind. The Hryvnia is down around 30%, mind you their correction is very very sharp, but then so was their inflation.<BR/><BR/>All those extra wages everyone was paying themselves on the basis of the current account deficits has now to be "bled" out of the system, the easy way or the hard way. Obviously everyone wants to attract investments and to start boosting exports as the global economy recovers in late 2009 or early 2010. It's just that some are positioning themselves, and others evidently aren't.<BR/><BR/>*****************************<BR/><BR/>Ukrainian industrial production fell at the fastest pace registered anywhere in Europe in November, falling for a fourth consecutive month, led by steel, machine building and oil refining. Output shot dopwn an annual 28.6 percent, following a 19.8 decline in October, according to the Ukrainian Statistics Office last Friday. Steel production slumped 48.8 percent, oil refining and chemical output fell 35.2 percent and machine building by 38.8 percent. <BR/><BR/>The Ukrainian economy, which has been expanding at an average annual pace of 7 percent since 2000, is now “in recession,” according to Finance Minister Viktor Pynzenyk speaking on December 10. Econoic growth will probably slow to between 3.5 percent and 4 percent this year from 7.6 percent in 2007, First Deputy Economy Minister Serhiy Romanyuk said on December 3, while the economy may contract by 5 percent next year, according to Oleksandr Shlapak, the president’s deputy chief of staff, at the end of November. <BR/><BR/>Ukraine’s national currency, the hryvnia, is heading to its worse year since 1999. It lost 34 percent in October and November and has been sliding further this month. The government of the nation of a 46 million people relies on a weakening hryvnia to boost exports, said Finance Minister Viktor Pynzenyk yesterday.Edward Hughhttps://www.blogger.com/profile/10384039867580949531noreply@blogger.comtag:blogger.com,1999:blog-36596111.post-73239251004823302512008-12-14T09:14:00.000+01:002008-12-14T09:14:00.000+01:00And,"There are a whole batch of tecnical issues in...And,<BR/><BR/>"There are a whole batch of tecnical issues involved, like how does a country with an external financing need run a Japan style ZIRP if we get stuck in long term deflation."<BR/><BR/>My guess is that the only rational explanation for the recent jittery nervousness on the rates front at the NBH is the sharp fall in inflation, and the even sharper fall in domestic demand which is now coming next year. GDP can easily shrink by 5% next year, and this can head you strait into a very deep deflation mire, and frankly they don't know what to do about it, which is why they have the jitters.Edward Hughhttps://www.blogger.com/profile/10384039867580949531noreply@blogger.comtag:blogger.com,1999:blog-36596111.post-71192248685065808472008-12-14T09:10:00.000+01:002008-12-14T09:10:00.000+01:00Hi,"Hungary needs foreign investment. Who would bu...Hi,<BR/><BR/>"Hungary needs foreign investment. Who would buy Hungarian assets for hard currency in the expectation of a substantial devaluation?"<BR/><BR/>Unfortunately this argument is circular, since who would invest in a Hungary where domestic demand is shrinking, and relative prices mean exports are too expensive.<BR/><BR/>Of course, there is another route, which is three or four years of quite sharp internal price deflation, with wages falling significantly. This is where we are headed if no one does anything, and my argument is that from a macro economic management point of view this road is more difficult, and certainly much more painful for the general population. There are a whole batch of tecnical issues involved, like how does a country with an external financing need run a Japan style ZIRP if we get stuck in long term deflation. Where we are going now it would be better to have never entered.<BR/><BR/>And maintaining the CHF parity where it is doesn't get you off the mortgage crisis hook, since if your wages fall 20 to 30 percent this has the same effect on your personal finances and your ability to pay the mortgage as does a single, one off, devaluation. <BR/><BR/>"Who would buy Hungarian assets for hard currency in the expectation of a substantial devaluation?"<BR/><BR/>This is really a valid point, since this is why it is better to devalue NOW then there won't be a further devaluation to come. As it is any intelligent investor simply knows that devaluation is inevitable (no matter what the central bank and the politicians say, even the IMF can get it wrong, look at Argentina in 2000, they had to devlaue in the end), and thus will wait till AFTER the devaluation, which is what, by its own strange logic, also makes a devaluation inevitable. The only thing which would convince would be to see those export numbers shoot up, and at the moment we are going in exactly the opposite direction, and quickly.Edward Hughhttps://www.blogger.com/profile/10384039867580949531noreply@blogger.comtag:blogger.com,1999:blog-36596111.post-69580858360920358512008-12-14T00:04:00.000+01:002008-12-14T00:04:00.000+01:00Hungary needs foreign investment. Who would buy Hu...Hungary needs foreign investment. Who would buy Hungarian assets for hard currency in the expectation of a substantial devaluation?Anonymousnoreply@blogger.com