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Wednesday, July 30, 2008

Hungary Producer Prices Drop Back In June

Hungary's industrial producer prices were down 0.5% month on month in June, against a 1.1% decline in May, according to data from the Central Statistics Office (KSH) this morning. Year on year the rate of increase in the PPI dropped to 4.6% from 4.9% in May. More importantly, domestic price inflation was up at 12.1% yr/yr in June (vs. +11.7% yr/yr in May +7.3% in June 07), while in monthly terms it was up by 0.7%, from +0.3% in May (and +0.3% in June 2007).

So the y-o-y reading indicates the strongest industrial producer price pressure in the Hungarian economy since the beginning of 2004.

Export sales prices were much better behaved, and in June dropped back by 0.8% yr/yr as compared with -0.1% in May and -9.3% in June last year. In monthly terms the KSH reported a 1.4% decline over May, following a 2.2% drop in May and -0.7% m/m in June 2007.

In May, food price inflation came down slightly to 0.2% m/m from 0.6% in May, and to 14.2% yr/yr from 14.7%. On the domestic front food price inflation also decelerated to 0.4% m/m from 0.8% in May, while it remained unchanged at 13.7% in annual terms.

The disconnect between export and domestic prices is begining to become preoccupying I think, since at the end of the day those who work in the export sector still have to purchase their life necessities on the domestic market, and productivity improvements do not come in a bottomless supply, and nor do expectations for a rise in the value of the forint.

Tuesday, July 29, 2008

Hungarian Employment and Unemployment Drop In Q2

Employment and unemployment both fell in Hungary in the second quarter of 2008. The solution to this othwise brain-baffling enigma is, of course, that Hungary now has an ageing and declining population, this falling unemployment is completely compatible with very low economic growth and large numbers of people leaving the labour force at the upper end in order to retire.

Hungary's unemployment rate declined in the second quarter from the first to a seasonally adjusted 7.6 percent, which compared with the 8 percent registered in the January-March period, according to the national statistics office (KSH) in Budapest earlier today.

The number of Hungarians employed at 3.87 million was up over the 3.84 million in the first quarter but down when compared with the 3.94 million registered in the second quarter of 2007. The last time the number of employed in Hungary was this low during the second quarter was in 2002. The number of employed was down by over 70,000 since end-June 2007, while there were some 20,000 more unemployed and 50,000 more inactive people in April-June than in the same period of 2007.

Thus we find that more than 50,000 people have “disappeared" from the Hungarian labour force in the space of a year.

So the central bank now has a problem, since as people leave the labour market to retire the labour market also tightens, reducing the room for monouevre in reducing interest rates due to the continuing pressure on wages, even as economic growth approaches stagnation point.

Thursday, July 24, 2008

Hungary Retail Sales Continue Their Decline In May

Hungarian retail sales fell for the 16th consecutive month in May as government measures to reduce the budget deficit continued to sap consumer spending, forcing in the process thousands of small businesses into closure. Retail sales fell an annual 1.6 percent, after a 1.5 percent decline in April, according to the Budapest-based statistics office.

One consequence of the ongoing decline in sales is that the number of retail outlets in Hungary fell by 3,173 at the end of 2007 to a 5-year low of 162,473 as the smallest shops are forced out of business, according to statistics office data.The number of stores owned by individual entrepreneurs fell by 2,896 last year to 62,794 at the end of December, the lowest since records were started in 1998.

The seasonally adjusted retail index now stands at 137.5, well down from the August 2006 high of 144.6. Given that Hungary now has a rapidly ageing and declining population I see no good reason why retail sales should ever reverse this downward trend (on a longer term basis, obviously there can be month on month rises), so it may well be that 2006 was the historic high point for Hungarian retail sales.

Monday, July 21, 2008

Hungary's Central Bank Keep Rates On Hold In July

Hungary's central bank kept its benchmark interest rate unchanged at a three-year high today as the surging forint, Europe's third-best performing currency, continued to put a cap on inflation. The Magyar Nemzeti Bank left the two-week deposit rate at 8.5 percent, the second-highest in the European Union after Romania.

The forint has gained 4.2 percent against the euro in the past month, helping control inflation that's been faster than the central bank's target for almost two years. Monetary policy makers last month left the key rate unchanged after raising it 1 percentage point since March, saying the currency can keep food and oil prices from pushing up other costs.

The Council has basically maintained its view that Hungarian economic growth has remained subdued and inflation is likely to continue falling slowly but steadily. The continuing negative output gap should help to crimp inflation over a medium term horizon all other things being equal. However the danger clearly exists that inflation expectations become stuck at a high level, as the global rises in food, commodity and energy prices maintain the upside risks to inflation.

At the moment no big surprises here. Now we need to see the Q2 2008 GDP growth numbers.

Friday, July 18, 2008

Hungarian Construction Continues Its Moderate Uptick in May 2008

The recovery in Hungary's construction industry appeared to falter in May, with the year on year level of output falling again - at a 7.8% rate - when compared with the 0.8% y-o-y growth recorded in April, according to the latest data from the Central Statistics Office (KSH). According working day adjusted data, the y-o-y decline was 6.7%, versus a fall of 1.6% in April.

However, on a seasonally and working day adjusted basis there was a 1% month-on-month decline in output in May, compared with a 3.1% increase in April. Output in January-May was thus down 12.1% compared to the first five months of 2007. However if we look at the chart below, we can see that while output fell back a little in May over April, it is still up on March, and in fact since January the trend has been upwards. On the other hand we are still well down from the much higher levels attained at the end of 2006.

The stock of orders in construction industry enterprises was 36% below the level of May 2007. The figure at buildings was -32.1% and -39.2% at civil engineering.

So we can say that the Hungarian construction industry showed some signs of revival in the February-April period, despite the fact that the improvement took place from very low levels. (At the end of 2007, the volume of construction industry output was at levels last seen in early 2003.)

The significance of this is that the construction industry contributed to the very weak recent headline GDP growth with very large declines in each of the last six quarters, and hence this small revival will undoubtedly help nudge GDP groth up in Q2. However we need to be extremely careful in moving beyond recognising this evident fact to drawing any more generalised conclusion about the course of the Hungarian construction industry in the coming months. Like so many other things about the Hungarian economy right now, it depends.

Thursday, July 17, 2008

Hungary Wage Growth Slows in May 2008

Hungarian wages grew in May at the slowest pace since January, easing pressure on the central bank to raise the key interest rate more from a three-year high. Hungary's monthly average gross wages rose by 9.6% year on year in May, down from 10.6% in April, according to data from the Central Statistics Office (KSH) Thursday. Net wages were up 8.4% year on year following an increase of 9.1% in April. Net real wages (ie allowing for inflation) were up 1.4%, the slowest rate since last January.

Ex-bonus wage increase in the private sector - possibly the most closely data point over at the central bank moderated to 7.4% year on year in May from 9.1% in April. The May increase is the smallest in the past two years.

Working day effects were evidently favourable this month, and were part of the explanation for the slightly slower rate of increase following the strong April data.

“Public sector wages were higher than the private sector ones - up at a 13.0% rate from 12.8% in April- but the changes in the timing of bonus payments continues to explain the bulk of this difference growth. As msot of the analysts are pointing out the wage data remain very noisy, and there may well still be "whitening" effects at work.

The central bank had earlier stressed that they saw accelerating wage growth as a sign of rising inflation expectations at a time when government austerity measures were weighing on corporate profits. Consumer prices have risen more than the bank's target for 23 months now, with the result that monetary policy makers have raised the benchmark two-week deposit rate 1 percentage point since March to its current 8.5 percent.

Policy makers, who will next discuss rates on July 21, decided to leave the base rate unchanged at 8.5 percent last month, arguing that gains by the forint - the world's best-performing currency in June - have been sufficient to take some of the sting out of inflation. The forint rose 6.7 percent against the euro over the past month.

The inflation rate fell to 6.7 percent in June from 7 percent in May. The bank expects inflation to average 6.3 percent this year and 4.2 percent in 2009, with the rate declining to 3 percent some time in 2010.

Friday, July 11, 2008

Hungarian Inflation Falls Back Slightly In June 2008

Hungary's inflation rate fell back slightly in June as food prices declined and the forint's strength checked increases in fuel costs. The decline raises the possibility that the central bank may keep its benchmark interest rate on hold at the next meeting.

Hungary's annual rate fell to 6.7 percent in June from 7 percent in may, according to data released by the National Statistics Office earlier today. Consumer prices rose 0.1 percent from May. Core inflation, which strips out food and energy costs, was 5.8 percent in the year and 0.4 percent month on month.

Food prices fell 0.4 percent month on month in June, led by a 9.9 percent decline in the cost of seasonal fruit and vegetables. Clothing products were 0.3 percent cheaper and the strengthening forint cut the cost of consumer durables by 0.2 percent. Fuel prices rose 0.8 percent.

Hungarian inflation has been faster than the Magyar Nemzeti Bank's 3 percent goal for 22 successive months now, leading the bank to raise the benchmark interest rate by a cumulative 1 percentage point since March to a three-year high of 8.5 percent. The bank now expects inflation to average 6.3 percent this year and 4.2 percent in 2009, with the rate falling to 3 percent some time in 2010, according to the latest forecasts, published on May 26.

Part of the explanation for the slowing inflation is also the rise in the forint (which makes imports cheaper). The forint has been the world's best-performing currency over the past month, having gained 6.9 percent against the euro. It touched a record 229.64 on July 9 and was at 231.57 at 10:36 a.m. this morning in Budapest from 231.23 late yesterday.

The downside of the strong forint and high interest rates is, of course, going to be felt on the economic growth front, since Hungary is now and export driven economy. Industrial output dropped by 0.7% month on month in May, according to seasonally and by working day adjusted numbers, as compared with a 1.4% month on month rise in April over March.

The drop in IP was almost certainly a result of the export situation since Hungarian exports actually FELL on a month on month basis in May. They fell from 1673.4 billion HUF in April to 1513,3 Billion HUF in May. That's about a 7% drop m-o-m. For an export driven economy with weak domestic demand and reducing government expenditure, this is pretty well-nigh a disastrous reading. It also puts all the recent speculation about how "high" the forint can rise into some sort of more realistic perspective.

Wednesday, July 09, 2008

Hungary's Industrial Production

Hungary's industrial output rose by 2.2% year on year in May, according to unadjusted data and was up by 4.7% year on year, on a working days adjusted basis, according to preliminary data from the Central Statistics Office (KSH) yesterday. Following last month's 11.8% (uncorrected) and 6.5% (wd adjusted) increase this is a marked slowdown.

Output dropped by 0.7% month on month in May, according to figures adjusted seasonally and by working days, versus a 1.4% pickup in April.

This data would suggest that Hungarian export growth is slowing, and it is, since exports dropped month on month in May. How much of the slowing is to forint appreciation and how much to growth slowdowns in the eurozone also remains to be seen.

Friday, July 04, 2008

Hungary External Trade April 2008 (Detailed)

Hungary's statistics office (KSH) this morning confirmed that Hungary had a trade surplus in April for a third consecutive month as the government austerity programme and monetary tightening at the NBH continued to damp domestic consumer demand, curbing imports.

The surplus was 64.1 million euros ($100.8 million) compared with 198.9 million euros in March and a deficit of 155.4 million euros in April last year, the Budapest-based statistics office today. The April figure was revised from a preliminary estimate of 54.2 million euros (see blow).

Hungary's trade deficit has now been shrinking for two years as exports have gathered strength while government measures to cut the budget deficit, which was previously the widest in the European Union, and higher interest rates from the NBH have crimped consumer demand for imports.

According to the revised figures, exports rose 22.8 percent in April from a year earlier, the fastest rate in nine months, while imports increased 18.1 percent (% in euro terms). Seventy-seven percent of exports went to the European Union while 68 percent of imports came from EU countries.


Hungary posted another trade surplus (EUR 54.2 million) in April, according to first estimate figures released by the Central Statistics Office (KSH) on Friday. The figure compares with a surplus of EUR 198.9 million in March and a deficit of EUR 155.4 m in April 2007. This data simply underlines the significant tutnaround which has taken place in the Hungarian external trade position over the last 12 months.

Exports in April 2008 came to a total of EUR 6,429.4 m, up by 22.8% year on year, which compares with a growth of 4.2% in March (although we need to be careful here since March was an unusual month due to the timing of easter, and March /April are better taken together). Imports were EUR 6,375.1 m, 18.2% up on April 2007. In March year on year import growth was down to 2.9%.

The January-April balance (which is a much better indicator of where we are) showed a EUR 330.6 million surplus, which compares with a deficit of EUR 307.2 m in the same period of 2007. Exports were up 15.2% (in euro values) in January-April 2008 over January-April 2007. In the same period imports were only up by 12.1% hence the improvement in the trade balance.

Hungary sent 78% of its exports to the European Union and imported 69% of its goods from the EU in April.

The gap between export and import growth rose to 4.6 percentage points in April, up from 1.3 percentage points in March.