Hungary Budget Deficit 2007

Hungary's budget deficit as calculated by European Union standards was probably 5.7 percent of gross domestic product last year, the narrowest since 2001 according to Finance Minister Janos Veres in a press conference in Budapest this morning. The shortfall, which compares with an original deficit forecast of 6.8 percent of GDP for 2007 and 9.2 percent deficit in 2006, is a first estimate at this point. The final figure will probably be between 5.5 percent and 5.8 percent, Veres said.





Now while this improvement in Hungary's finances is very welcome, I think we should all be bearing in mind that the very low GDP growth reading we have been getting in 2007 were in the context of a still very accomodative (to the tune of possibly 5.5%) fiscal stance. This support is going to be gradually withdrawn, and the Bank of Hungary will have great difficulty easing interest rates and thus loosening the monetary stance, even while the external environment (think exports) is deteriorating quite rapidly. I therefore fail to see where all the short term optimism - ie that things are going to get better, rather than notably worse, comes from quite frankly.

``Budget policy was influenced by disciplined spending and the fact that there was extra revenue from a whitening of the economy,'' Veres said. ``There was more revenue from taxes and social security contributions than we planned.''

Hungary has budgeted a deficit of 4 percent of GDP for this year, still exceeding the EU's limit of 3 percent. The country will be ``near'' the 3 percent mark by 2009 as a result of ``disciplined'' budget policies, Veres said. It is precisely this kind of fiscal tightening, which is undoubtedly necessary, which makes me question the unrealism of some of the estimates we are seeing for future growth.

Better than expected revenue in 2007 totaled 362 billion forint ($2.1 billion), including 152 billion forint from higher income taxes and social security contributions as a result of wages rising more than expected. A crackdown on tax evasion yielded 80 billion forint more than planned in revenue, more than half of it collected from personal income tax. Interest expenses were 105 billion forint less than planned because Hungary was able to borrow at lower yields than the government had expected.

Hungary Industrial Output November 2007

Hungarian industrial production grew in November at a slower annual pace, raising concern about the recovery of the European Union's slowest-growing economy. Production rose 5.5 percent from a year earlier and 0.1 percent from October, the Budapest-based statistics office said. The annual rate compares with 5.9 percent in the previous month.



This fits in with the general slowdown picture we have been getting, and does not constitute a positive feature towards the outloook for Q4 2007 growth.

As Daniel Bebesi from Bank, Budapest says:

“The November data showed that the sharp drop in October was not an outlier, and this does not bode well for Q4 GDP growth at all."

I couldn't agree more. He also says this:

“In 2008 we expect slight pick up in case of the domestic sales and moderate decline in case of the export. A possible sharper slow down in the euro zone could severely endanger any kind of growth recovery in Hungary"

German output is evidently very important for Hungary, and we just learnt that manufacturing industry in Germany contracted in November from October, and in general the German economy is slowing considerably (please see this post today here). My feeling many optimists are trying to be positive, but are living in a parochial world which is completely out of touch with broader macro economic trends, and also fails to see why we should not be quietly waiting for some sudden "turnround" here. Things are going to get a good deal worse before they start to get better, and we should be recognising this openly now. The limit is what happens to the current account deficit when the demand for foreign currency loans peaks, and these inflows no longer compensate for the external investors pulling there money out. This is when push will really come to shove.

Hungary Producer Prices November 2007

Hungary's industrial producer prices inflation rose to 0.7% month on month in November from 0.3% in October, and to 0.4% from -1.4% year on year, the Central Statistics Office (KSH) reported on Friday.



Domestic price inflation was also higher, 0.9% m/m (vs. 0.8% in Oct) and 5.4% yr/yr (vs. 4.0% in Oct). Producer prices in the manufacturing industry climbed further up by 1.3% m/m against a 1.1% increase in Oct. Export sales prices in November fell by 3.6% yr/yr against a fall of 5.7% in the previous month and +2.7% in Nov 2006. In monthly terms the KSH reported a 0.6% rise, following a 0.1% fall in Oct and -1.6% m/m in Nov 2006.

Food price inflation rose to 11.5% yr/yr from 9.9% in the previous month.