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Thursday, October 25, 2007

Hungary Retail Sales August 2007

Hungarian retail sales fell for a seventh month in August, maintaining a decline in consumer demand that poses serious difficulties for any sustained economic recovery at any point in the forseeable future. Retail sales slid an annual 3.6 percent after a 4.2 percent drop the previous month, the Central Statistics office said today.

Eszter Gárgyán, of Citibank, Budapest, is extensively quoted in Portfolio Hungary, and this appreciation of the situation seems reasonable.

“The monthly drop in retail sales was less than our expectations and the market forecast. This was due to increasing clothing and book sales, which we believe are both seasonal trends and are unlikely to be sustained in 4Q. Increased clothing sales volume was probably driven by summer sales, which is likely to be offset by lower sales in September, when clothing prices increased, in our view."

“Book sales will probably continue to increase in September in line with normal seasonal patterns, but this is also likely to fade away for the rest of the year."

“Declining car sales (which are also evident from lower car loan flows) are an indicator of households' pessimistic outlook on their own financial situations, which have contributed to a further decline in consumer confidence in September."

“We expect household consumption to remain negative in 4Q. Rising food prices are likely to contribute to deteriorating consumer sentiment, as households are usually more sensitive to changes in food prices."

“The upside surprise in retail sales data is unlikely to change the monetary policy outlook. We expect the National Bank of Hungary (NBH) to alter its CPI projection in its November forecast, based on a faster rise in food and fuel prices in 4Q07 and 1Q08 compared with the August inflation report."

“However, we expect inflation to decline sharply by 2Q09. We believe medium-term disinflation is likely to be supported by weak domestic demand, which was confirmed by the recent months' data. Inflation expectations and wage demand remain the key risks to the medium-term inflation outlook, in our view."

Wednesday, October 24, 2007

Catch Up Growth and Demographics - Evidence from Eastern Europe

by Claus Vistesen: Copenhagen

Performing a simple series of adept Googling exercises around various sources on the internet you can easily discover that certain species of the lynx are able to travel at speeds of up to 50 kph (31 mph). Wikipedia informs us that the Eurasian lynx, on average, commands a hunting area of between 20-60 square kilometers in which the lynx is able to walk and run about 20 kilometers in one single night. All in all, a pretty rugged and constitutional little thing this lynx.

In this way, and perhaps because, at that particular point in time, the Eastern European Economies looked as if nothing could come in their way of economic prosperity and growth they were paired, by the Economist, with the region's sturdy feline coining the notion of 'Lynx Economies.' Thus, 'that particular point in time' was sometime back in the spring of 2006 where the Economist's (and my own) coverage of the CEE and Baltic economies came in hot on the heels of publications by the World Bank and and the Vienna Institute of Comparative Economic Studies speaking favorably of the future prospects of economic prosperity and thus 'catch-up' growth in the CEE and Baltic Economics.

Yet, merely 1 year and a tad later things seem to have changed quite significantly with respect to the discourse on the economic situation in Eastern Europe. Many of the contributors to this blog has been pitching on the change in discourse but also some of major institutional actors have been flagging the red banner. Not least the World Bank seems to have changed their attitude somewhat with most notably a recent report on the demographics of Eastern Europe entitled From Red to Gray - The Third Transition of Ageing Populations in Eastern Europe and the former Soviet Union as well as a recent writ with specific focus on the macroeconomic risks prevailing in the region. Yet, also the IMF in their latest World Economic Outlook devotes a chapter to the managing of large capital inflows where Eastern European economies also take center stage of the general tone of warning; in essence this note of warning concerning Eastern Europe seems to be the general talk of the day amongst economic analysts and journalists. As such, perhaps even the lynxes roaming the forests and planes of Eastern Europe are beginning to feel that the otherwise catchy notion conjured by journalists at the Economist is becoming something of a stretch according to the reality of the situation. Sure, things are moving fast now but it is what happens next which might finally serve to make the allegory rather unrealistic. In this entry I set out to explicitly investigate an issue which in fact has been treated several times on this blog and perhaps most often in the context of the CEE and Baltic Economies. Simply put and in the form of one simple question;

  • How do changing demographics and more specifically the final and ongoing stages of the demographic transition affect the notion and principle of economic catch up growth and thus economic convergence as it is stipulated by (neo-classical) economic growth theory?

As I have hinted above in the introduction my main subject of analysis on which the general theoretical argument is based is the current and ongoing situation in the CEE and Baltic economies. A lot has been written about this recently not least from the hands of the contributors to this blog (see also above). As a one-stop overview of the concrete issues at hand this recent note by Edward over at Global.Economy.Matters should provide you with suitable ammunition to get you started. In particular, the following three point overview of the current economic situation in Eastern Europe should always be in the back of your mind as we move forward from this point ...

Basically the principal outstanding issues confronting the EU10 countries are threefold:

  • Labour capacity constraints (which are normally a by product of long-term low fertility and large scale recent migration flows) are producing significant wage inflation and strong overheating.
  • A structural dependence on external financing - which is in part a by-product of the effect of low levels of internal saving, and which is another factor which separates the EU 10 from those like India or China who are benefiting from a typical demographic dividend driven catch up, is leading to large current account deficits, and potentially high levels of financial instability.
  • A loss of control over domestic monetary policy due to eurozone convergence processes which - with or without the presence of formal pegs - make gradual downward adjustment in currency values as a alternative to strong wage deflation virtually impossible. This issue is compounded by the likely private "balance sheet consequences" of any sustained downward movement in the domestic currency given the widespread use of mortgages which are not denominated in the local currency.
Traditionally a rigorous economic analysis in the light of the immediate events would focus a lot on point 2 and 3 but in this note we shall look specifically at number 1 and the issues of labour capacity, its constraints, and what it means of the economic growth of less to medium developed countries. Now, the most obvious caveat in this entry is that I really don't have the time at this point to really lay out the whole theoretical framework of economic growth theory and as such the precise slot in which my argument should be inserted within the wider theoretical framework. This will be the topic of a more rigorous article not suited for the blog format. However, I still need to attach some comments to set the scene where I should also immediately note that my previous note here at DM about catch up growth in Eastern Europe serves as a good state of the game post for what comes next.

Apart from my studies of selected pieces of the economic growth literature one of the best overviews of the concept of economic convergence as a function of the theoretical and practical assumptions vested in the growth models is to be found in an article by Norbert Fiess and Marco Fugazza on economic integration in Europe (PDF). As such it is important to note that convergence of GDP per capita levels is not a holy grail within the fields of economic growth theory. Rather, the process of convergence should be seen as an inbuilt consequence of the fact that as economies mature returns to production inputs decrease; that is to say that this discussion essentially revolves around the concept of increasing v. decreasing returns to scale in our economic model. If we think about decreasing returns to scale and introduce the concept of marginal productivity to production inputs we can then see that less developed countries are likely to exhibit higher rates of growth than their more mature counterparts in the sense that their marginal productivity is higher which then leads to a process of convergence. Now, this argument in its most strict sense is usually applied in the context of capital as a production input and coupled with the properties of an open economy and subsequent free flow of production factors this would lead to a rather rapid process of convergence or absolute convergence as the technical term. As regards to labour as a production input is has also been argued that the universal transition from an agricultural to manufacturing over to service (?) based economy produces a mechanism of convergence in the sense that this process implies a move up the value chain and thus that every unit of labour becomes more productive. Of course and even though we are talking about stylised facts here, this is also where the whole debacle begins in the context of my immediate argument because how certain is this process? Also, we need to take into account the distinction between stocks and flows (of labour) which is a crucial issue to consider when talking about ageing economies.

However and it does not take much of an economist to see that empirical facts do not support the idea of absolute convergence or at least it seems as if the process takes much longer to materialize than predicted by the theory. This has lead, among other factors, to a 'new' strand of economic growth models which allows for persistent growth divergence to exist between countries. The crucial aspect to understand here is the mechanism through which persistent divergences can occur. In this way, one of the widest contributions by economist to this thesis has dealt with the possibility that technological processes and thus accumulation of technological advances exhibits increasing returns to scale. The fundamental brilliancy of this notion is that it allows for a model where there is indeed decreasing returns to labour and capital but where different levels of technological effort leads to internal positive feedback mechanisms and thus explains persistent divergences in growth and 'prosperity' across countries.

Ok, I think that I have already said enough at this point and in order to get us back to track one crucial assumption and conceptual idea needs to be pinned down. As such and if we look at the rudimentary description of the economic growth process above it is not wholly unreasonable to argue that the growth process of an economy is somewhat directly related to the process of the demographic transition. Or as Robert Lucas puts it in a widely cited article ...

That is, the industrial revolution is invariably associated with the reduction in fertility known as the demographic transition.

As such, why don't we take a look at Eastern Europe where the economies have experienced, quite as expected by the conventional theory of economic growth, economic dynamics tantamount to catch-up or convergence. Especially the economic data since the expansion from EU15 to EU25/27 and, for some countries, the subsequent anchoring to the Euro has been very impressive indeed. Yet as Edward and I have been at pains (see link above) to explain again and again these countries are not your average emerging markets. This follows from the fact that their demographic structures have been fundamentally distorted due to a collapse of fertility in the beginning of the 1990s which has been aggravated by a persistent net outflow of migrants serving to further speed up the decline in the working and essentially also most productive cohorts. In order to capture this development and in order to frame the current situation the following point I made in a previous note is worthwhile to repeat.

In short, we are dealing with countries where the demographic transition by far, and indeed worryingly, has out paced the traditional economic process of economic convergence.

This is exactly what we are talking about here and apart from going to the heart of the imminent issues in Eastern Europe it also strikes right smack into the concept of economic growth theory and how to deal with the fact that the demographic transition does not occur the way it was originally anticipated. Most emphatically, we can see in the context of the Eastern European countries that the final stages of the transition have arrived far before and quicker than the twists and turns of history allowed for these economies to really get on with business. Yet, the general argument can just as easily be expanded into a discussion of the ageing part of OECD where it is painfully clear at this point that conventional economic theories are wholly incapable of explaining what is likely to happen next. In fact, we could stretch it so far as to say that modern economic growth theory is not able to explain what happens when fertility drops to a level below replacement level and stays there!

In Summary

Even though that a lot words have been written in this entry I am afraid that only superficial contributions have been made to the final answer of the proposed question. This entry principally had one main task, namely to initiate a line of reasoning which ultimately and hopefully can lead to a better understanding of modern economic growth processes in a context of the current demographic profile of many developed and developing economies. Specifically, this entry revolved around the concept of catch-up growth/convergence where the countries in Eastern Europe were suggested as an example to demonstrate how demographics can fundamentally alter the principles by which the economic growth process is likely to conform. In this way, the message is not that modern economic growth theory and growth accounting methods are rendered obsolete in the face of changing demographics but rather that considerable adjustment needs to be made; especially in the context of catch up growth/convergence but also crucially in the context of the notion of a steady state of economic growth. Returning briefly to the real world before we sign off it could seem as if the branding of the lynx economies never was more than a quick and essentially expensive make-up which is set to quickly wear off as we venture on. Specifically, recent signs coming out of the ECB and the European commission suggest that expectations are aligning towards an outlook where the process of convergence effectively risks grinding to a halt. My advice would then be not to exchange the carrot too swiftly into a stick since this would only serve to kick those who are already on the ground.

Monday, October 22, 2007

Hungary Construction Output August 2007

according to data released last Friday by the Hungarian Statistics Office, in August 2007 the volume of construction activity in Hungary decreased by 15.3% when compared with August 2006 according to unadjusted indices, and by 14.4% according to indices adjusted for working days. In the first eight months of 2007 output was down by 7.3% when compared with the same period of 2006. In comparison with the previous month production decreased by 0.8%, according to indices adjusted seasonally and for working days.

What is evident from this data is that the Hungarian construction industry is in deep depression, and given what happened in the global banking sector in August, and the impact that this is likely to have on construction activity, this depression is unlikely to come to an end anytime soon.

At the more detailed level the output of complete constructions and civil engineering decreased by 21.2% over August 2006, while building installation decreased year on year by 7.2%. Completed buildings, on the other hand, only went down by 2.3%.

According to unadjusted indices the construction of whole buildings decreased by 5.6% and that of civil engineering fell by one quarter when compared with August 2006.

The stock of orders pending at the end of August was down by 40% on August 2006. Within this total, the stock of orders for building construction decreased by 13.6% while that for civil engineering was down by 54.4%. The volume of new orders was down by 15.1% on August 2006.

Now we really need to take a hard look at the Q3 2007 GDP data so we can see what is really happening here.

Tuesday, October 16, 2007

Hungary Unemployment September 2007

Now here'¡s another piece of data I'm having trouble interpreting. According to the Public Employment Service (ÁFSz), in September the number of job-seekers registered was 415,800, 37,500 higher than a year ago, but 1,421 lower than in August. This seems to suggest that both the economy is slowing and the number of unemployed is declining, which is strange to say the least.

According to the BBJ

The number of first-job-seekers grew 1.1% year on year to 45,439. The numbers reflect the layoffs in the public sector, since it is the Central Hungary Region that saw the largest increase, said ÁFSz chief director Károly Pirisi. Also, the growing number of the underprivileged in the system makes the statistics even worse – as they have even more trouble finding jobs, he added.

The ratio of unemployment in the Central Hungary Region is 3.5%, in North Hungary 17.3% and in the North Alföld Region 16.2%. Szabolcs-Szatmár-Bereg County registered the highest number: 20.6%. The employers reported 27,000 new unsubsidized jobs in September, 17.9% less than a year ago, mainly for unskilled workers, offering a Ft 84,100 gross salary.

Well, I will get to the bottom of all this eventually, but here is the chart just so you can see for yourself.

Monday, October 15, 2007

Hungary Referendum Gets Legal Clearance

Hungary's Constitutional Court yesterday gave legal clearance to the parliamentary opposition to push ahead with a referendum to reverse some of the government's spending cuts. The Budapest-based court ruled that voters can be asked to scrap university tuition fees as well as charges for doctor visits and hospital stays. The ruling means the opposition Fidesz party can now start collecting the 200,000 signatures per question to hold a nationwide vote.

According to press reports the opposition leader Viktor Orban is counting planning to try to use the referendum to bring down the government of Prime Minister Ferenc Gyurcsany. The measures in the austerity package involved cutting public jobs, raising taxes and slashing subsidies in an effort to reduce what was at that point the European Union's biggest budget deficit.

This is an economic and not a political blog, and in that sense it does not take sides in the internal political disputes of Hungary, but obviously - with the delicate situation which exists all over the EU 10 in economic terms - the last thing Hungary needs at this point in time is referendum or elections or any kind of political instability. What is needed is a common front from all parties to try to find a consensually grounded way out of the mess.

Magyar Nemzeti Bank in Pessimistic Mood

Unfortunately, for some reason the national bank seem to publish their quarterly report only in Hungarian, so I can only read this brief summary in Bloomberg:

Hungary's outlook for economic growth, the European Union's second slowest after Denmark in the second quarter, deteriorated as the effects of government austerity measures spread, the central bank said.

Growth in the second quarter was 1.2 percent as efforts to cut a record budget deficit, including higher taxes and energy prices, sapped consumer demand and curtailed government spending. The slowdown may be spreading beyond state-controlled industries, the bank said in its quarterly report today.

``Growth prospects changed negatively, despite the continuing favorable international environment,'' according to the report posted on the bank's Web site. ``The larger-than-expected slowdown may also be wider. The decline in construction output suggests a subdued investment outcome, which may risk the longer-term growth path of the economy.''

The current forecast from the Magyar Nemzeti Bank is for growth to be at 2 percent this year, while it expects next year's rate to 2.7 percent and the 2008 figure at 3.4 percent. These numbers seem way too high to me, especially given what is happening in the eurozone, and the risk of a generalized crisis in the EU 10 in the not too distant future. My feeling is that Hungary will have a brush with recession this winter and if the economy manages not to contract in 2008 then this will be a "good" result.

The central bank mentioned construction activity, and here is the latest data we have on that. I really need to do a more detailed analysis of the components of GDP growth to see where exactly we are here.

In the meantime, and on a slightly separate issue, I recently posted on the state of the CA balance, and in particular I put up this chart here:

What we can see here is the importance of payments on equities in the Hungarian CA issue. This provoked Daniel Antal to make the following very interesting observation in comments:

I think you see the problem very clearly....... Your argument is very much valid I think.

However, I think you cannot do too much about it. Central Europe has a huge wealth problem: it always had very small per capita capital stocks compared to Western Europe. Privatization helped in the short-run, because made loss making ill-managed state-owned companies work again, thus giving the population income. However, the wealth problem was not solved: the new owners obviously made investments in order to make profit.

Personal incomes are flows and are much more easier to move up than capital stock. Central Europeans earned less than Western Europeans for centuries. Even if wages will converge in a few decades it takes at least a century for capital stocks to be comparable.

Ironically what makes some convergence possible is that European, especially Western Europeans have destroyed the majority of their inherited capital stocks in the World Wars. Since they had much more to loose, they have lost much more in those wars and Central Europe has only fifty years of very low income to make up.

Another interesting point: at the start of the transition Central Europe had abundant labor supplies and very little capital, so wages were relatively low and capital gains were very high. Foreign capitalists and those few who grabbed capital stocks in the early years made fortunes. Now there seems to be a sort of overshooting: in many countries labor is relatively more scarce than capital and wages are rising.

But if you think about the good old production function, these are just relative measures. We still have fewer labor and less capital than Western Europe.

I think Daniel also understands the situation pretty well. FDI to buy old state enterprises helps with the efficiency situation, but it doesn't resolve the wealth problem. It saves government debt in the short run by giving others a stake in the national wealth - in the absence of members of the nation themselves having this - but in the end, like any other debt it has to be paid back.

In the Western European countries FDI is not an issue, since the accumulated wealth issue means that the country has very similar stocks of external FDI to balance the inflows. But Hungary's problem is a bit like people in the US worry theirs could become in 10 or 20 years if they continue with the CA deficit and the Chinese and others start to buy-up US enterprises with the proceeds of the trade surplus China has with the US. This is a very real concern for the US in the future, since the accumulation of investment stocks would mean that at some point the outflows on income payments (dividends or interest) would exceed the annual inward stock flow. That is why the dollar is going down and the US is trying to correct. But Hungary seems to have already reached that point, and, quite frankly, I am not sure what to do about this. Here is a chart showing the relative stocks of inward and outward FDI as shares of GDP. One is clearly much bigger then the other.

True the proportions of the flows of FDI have changed rather in recent years, and there is more outbound FDI, but the inbound still exceeds the outbound, so the position in the longer run continues to deteriorate. Anyone have a plan 'B' to hand?

Thursday, October 11, 2007

Hungary Inflation August 2007

Hungary's inflation rate fell to the lowest this year in September, giving the central bank some future scope to reduce what is at this point the European Union's highest benchmark interest rate.

The annual inflation rate fell to 6.4 percent from 8.3 percent in August, which was perhaps a touch higher than many analysts had expected. Prices rose 0.7 percent from August, while the core inflation rate, excluding volatile food and energy prices, was 0.6 percent for the month and 4.3 percent for the year.

Quote of the day:

"The drop (in headline inflation) was due to large base effects from the fiscal measures which had added over 2% points to the headline CPI rate last September."
Nóra Szentiványi, JPMorgan, London

Hungarian inflation, which is the EU's second-highest after Latvia's, is set to slow in the coming months as the effects of higher taxes and energy costs run out. The inflation rate has steadily declined from a six-year high in March, after quadrupling in a year due in large part to the impact of the government's austerity measures.

The annual inflation rate however is still likely to average 7.6 percent this year, which is higher than the earlier central bank 7.3 percent forecast. Policy makers generally expect inflation to slow to an average 4.5 percent next year and 2.4 percent in 2009, but there are a large number of question marks still hovering over every point in this process. Especially as regards the future evolution of food prices. This is no small "beer" since food prices in September rose by 2.2 percent from August and were 9.8 percent higher than a year earlier. Also food prices account for 22.4 percent of the consumer price index basket in Hungary.

A summer drought also complicated things since it lead to an increase in food prices, and this may keep inflation from slowing as much as policy makers anticipate. Temperatures in Hungary rose to all-time highs in July, and lead to the death of as many as 500 people, according to health authority estimates. The wheat harvest in what is the EU's fourth-largest producer of the crop was the smallest in four years.

The Central Bank's Monetary Council cut the benchmark interest rate to 7.5 percent on the 25 September, and this was the second reduction this year. Forward- rate agreements show investors consider the central bank likely to cut interest rates by at least three quarters of a percentage point in the next nine months. This process is however very uncertain at this point in time, since noone is really sure at this point what kind of slowdown the eurozone has entered - this is why Trichet was so non-committal at last weeks rate-setting meeting - or how this will affect Hungary. Since there has to be a limit to how far the central bank can let the forint fall due to internal balance sheet complications (the Swiss franc mortgages factor), my guess is that this can now become much more of a consideration as we move forward than the food price issue will be. The sharpness of the internal demand slowdown will mean that pressure to do something will mount, but as I say, reducing interest rates may prove hard for other reasons. Hence Hungarian monetary policy is stuck between the proverbial rock and the hard place.

The central bank will next meet to discuss borrowing costs on Oct. 29, so I guess we will get our next indication of how they intend to play this then.

Tuesday, October 09, 2007

Industrial Output August 2007

Well, from time to time there is a bit of good news in Hungary. According to preliminary data released today by the Hungarian Statistics office industrial output was again up in August. The industrial gross output increased by 9.5% when compared with August 2006, while the working day adjusted index rose by 12.2%. The volume of output was 9% higher in the first eight months of 2007 than in the same period of the previous year. The volume of industrial production in August – according to seasonally and by working-day adjusted indices – was up on July by 0.9%.

Here are the charts. First the index itself (seasonally adjusted):

and here's the monthly year on year change chart:

As István Zsoldos from Goldman Sachs says:

Industrial output is the only driver of growth at the moment, given the pressure on domestic demand from the government's deficit reduction efforts.

Obviously the only way forward from here is to dig yourself out on the back of exports. The downside factors are of course that nearly all the principal customers - the rest of the EU - are slowing fast, and, of course, the forint can't be reduced in value because of all those Swiss franc mortgages. Plenty of headaches to come, I'm afraid.

Wednesday, October 03, 2007

Hungary Current Account Balance Components

As can be seen from the charts below the Hungarian Current Account deficit puts the small trade in goods and services surplus that is steadily being achieved rather in the shade.

Services is generating a rather more stable surplus than trade, which - according to the quarterly balance of payments data provided by the Magyar Nemzeti Bank - has been in postive territory for the last three quarters (although it should be noted that the monthly trade data provided by the statistical office - the KSH - shows a slight negative balance here, possibly due to methodological differences in the calculations, be that as it may there is no doubt that there has been a considerable improvement). The problem is the very large negative balance on debt and equities. This is what keeps the CA deficit so strongly negative, and it is hard to see what order of magnitude improvement in the performance of trade exports would serve to correct this situation, since remember, as exports improve so too does the balance sheet situation and dividend potential of the firms doing the exporting, and so, back out the money goes again. This is one of the difficulties of an excessive reliance on FDI to fund a CA deficit, because at the end of the day FDI generates income, negative income from the point of view of the recipient. So while such investment may create domestic employment, which is very good, if not backed by a solid external financial position, it can lead to problems as we are seeing.

And as can be seen from the breakdown in the income deficit between debt and equities shown below, the lions share of the picture here is held by income streams generated by equity holdings.

Data Source: Magyar Nemzeti Bank, Balance of Payments, International Investment Position

Tuesday, October 02, 2007

Hungary Monthly Trade Gap

Hungary revised its initial estimate of the July trade gap down yesterday (by 20 million euros) to 145 million euros (or 37149 million HUF) according to the Hungarian statistics office. Exports grew by 5,587.9 million euros or were up 23.1% yr/yr in July as compared with a 17.9% expansion in June.

Imports were up 16.8% or 5,733.3 million euros as compared with a 16.0% increase in June.

The rate of growth in Hungarian exports has been exceeding that of imports for some two years now, so the 12 month trailing trade deficit is coming down steadily. It totalled “only" 1.4 billion euro in July, but this was less than half of the total for the same period last year. Exports to the European Union increased by 17.9% while imports from this source rose 15.7% year on year in the first seven months of 2007.

Source: KSH External trade, Detailed results, January-July 2007

Hungary PMI September 2007

The Hungary manufacturing PMI jumped in September. While manufacturing activity across the euro zone has been dropping steadily to a near two-year low in September, Hungary's seasonally adjusted Purchasing Manager Index (PMI) jumped by 3.6 points to 54.2 points, a five-month high, according to the Hungarian Association of Logistics, Purchasing and Inventory Management (HALPIM) earlier this week.

On the other hand, the Ecostat Top-100 index, a monthly measure of confidence at Hungary's largest hundred companies dropped to a five-month low of 95.8% in September from 103.4% in August. It was however well above its 74.8% level of a year earlier.

The September PMI was slightly up from the 53.4 registered in Sept 2006 and over the 52.3 average for the same month for the previous three years.

The majority of sub-indices gave higher readings than in August, especially the new order volume (up 5.3 pts to 58.2), production output (+4.5 to 54.5) and employment (+3.7 to 53.1) ones.

The index of inventories, however, jumped 7.2 pts to 58.4.

Oh well, good news is always good news, even if we are not really sure what happens next here.

Hungary Q2 2007 Current Account Deficit

According to data from Magyar Nemzeti Bank last week Hungary's current-account deficit widened in the second quarter of 2007, from the previous Q1 as rising interest payments led to a higher income gap.

The shortfall in the second quarter 1.7 billion euros, compared with a restated 1.2 billion euros in the first quarter, the Budapest-based central bank said today. The deficit compares with 1.6 billion euros in the year-ago period.

Hungary has the European Union's highest benchmark interest rate after government measures to reduce the EU's widest budget deficit almost quadrupled the inflation rate in the year to March.

These figures mark a halt in the reduction which had been taking place in the deficit over the last three consecutive quarters. An improving goods trade balance which has been led by rising exports was behind the improvement.

Hungary's CA shortfall was 2.9 billion euros in the first six months of the year, compared with 3.2 billion euros in the same period last year. The income deficit in the second quarter widened to 2.3 billion euros from 1.9 billion euros in the first quarter. The surplus on goods traded was 200 million euros after a 393 million-euro shortfall in the first half of last year.

Hungary's net external debt rose 3.8 billion euros from Q1 in the second quarter, to 37.1 billion euros.