Hungary's Finance Ministry announced today that he expects the public sector deficit to reach HUF 27.5 billion in January and total HUF 1,111.2 billion in 2008, which would correspond to 4.0% of gross domestic product. State secretary István Várfalvi told a press conference this morning that the ministry expects a budget gap of HUF 581.5 billion or 2.1% of GDP for the first quarter. Hungary posted a surplus of HUF 48 bn in December 2007 (see this post here, which in addition to details contains some argumentation), against the ministry's forecast for a HUF 14 bn deficit. The annual cash-flow deficit (excluding local governments) amounted last year to HUF 1,291.4 bn or 5% of GDP, in line with the preliminary figure announced on 8 January, the ministry confirmed.
The original target was for a gap of HUF 1,668 bn, so the actual figure was HUF 377 bn lower than planned and down by HUF 750 bn from the gap registered in 2006. According to Finance Ministry estimates, GDP growth was 1.5-1.7% last year, while the country's external financing requirement dropped to 4.5% of GDP, ministry official Katalin Haraszti said. The government's forecast in the last update of its Convergence Programme, which was sent to Brussels on 1 December, was for a GDP growth of 1.7% and external financing requirement of 4.1% of GDP.
Basically, if external events do not intervene, we would have to expect pretty low growth this year due to the ongoing and systematic squeeze on government spending, plus the contraint on monetary easing which the central bank is under, which in part is driven by a need to contain inflation, but also now increasingly will e driven by a need to protect the Forint given the high level of swiss franc denominated external debt.
But when we consider that government spending can be down, domestic demand can be down, construction can be steady to down and exporst can come under very heavy pressure from the external slowdown, it is hard to see where Hungary is going to get GDP growth from this year. There seem to be no counter-cyclical measures available here at all.
Thursday, January 17, 2008
Hungary Wages and Employment November 2007
Hungary's monthly average gross wage rose more than expected in November, making it even more difficult for the central bank to justify cutting what is currently the European Union's second-highest interest rate. Average monthly wages rose at an annual rate of 9.3 percent to 205,193 forint ($1,180), according to data released by KSH - the Budapest-based statistics office - earlier today.
Central bank policy makers, who will next discuss interest rates on Jan. 21, last month said the increase in inflation expectations, as reflected in wage developments, was a risk to price-growth targets. The central bank has kept the benchmark two-week deposit rate at 7.5 percent since September after two cuts earlier in 2007.
Private sector wages - excluding bonuses - rose 8.5 percent from a year ago. The pace of increase slowed from 9.7 percent in October. Public sector wages, on the other hand, increased from an 8.5% rate in October to a 14% annual rate in November, hence the jump in the average monthly figure.
At the same time net real wages (subtracting changes in the CPI from net wage increases) after falling sharply earlier in 2007 have now significantly stabilised.
Hungarian trade unions and business leaders on Dec. 21 agreed to increase wages by between 5 percent and 7.5 percent this year, following staements from the central bank that the agreed figure would be pivotal for rate policy. Central bank President Andras Simor four days earlier said an agreement of 6 percent would be consistent with rate-setters' forecasts. Basically the central bank will now probably adopt a wait and see approach, looking carefully at January's inflation and wage increase data before taking any decision on rate cuts. This, of course, is a big problem, since stagnant internal demand, and a deteriorating external environment mean that the Hungarian economy badly needs some stimulus.
On the other hand, despite the fact that unemployment has remained reasonably contained, employment creation is weak to negative, with the number of Hungarians in full time employment running at 2.75 million in November, 2.3 percent less than a year earlier. The government has shed 5.7 percent of its jobs in a year, reducing the number of public workers to 729,600. The apparent inconsistency between falling employment and steady unemployment is doubtless partly to be explained by the ongoing ageing of the Hungarian labour force.
Raffaella Tenconi, Dresdner Kleinwort, London, as quoted in Portfolio Hungary
Also we need to keep a close eye on what is happening in the stock markets at the moment. Yesterday Bloomberg ran this story:
The Austrian banks are the most exposed should there be any large correction in central and Eastern Europe.
Update, Thursday Afternoon:
The same tonic continued today. According to Bloomberg:
As I say, this all needs watching very very carefully at this point. Could the correction be starting even as I write?
Friday, 18 January 2007: the sell-off continued for another day today, although Hungarian stocks actually rose slightly.
As Bloomberg report
Central bank policy makers, who will next discuss interest rates on Jan. 21, last month said the increase in inflation expectations, as reflected in wage developments, was a risk to price-growth targets. The central bank has kept the benchmark two-week deposit rate at 7.5 percent since September after two cuts earlier in 2007.
Private sector wages - excluding bonuses - rose 8.5 percent from a year ago. The pace of increase slowed from 9.7 percent in October. Public sector wages, on the other hand, increased from an 8.5% rate in October to a 14% annual rate in November, hence the jump in the average monthly figure.
At the same time net real wages (subtracting changes in the CPI from net wage increases) after falling sharply earlier in 2007 have now significantly stabilised.
Hungarian trade unions and business leaders on Dec. 21 agreed to increase wages by between 5 percent and 7.5 percent this year, following staements from the central bank that the agreed figure would be pivotal for rate policy. Central bank President Andras Simor four days earlier said an agreement of 6 percent would be consistent with rate-setters' forecasts. Basically the central bank will now probably adopt a wait and see approach, looking carefully at January's inflation and wage increase data before taking any decision on rate cuts. This, of course, is a big problem, since stagnant internal demand, and a deteriorating external environment mean that the Hungarian economy badly needs some stimulus.
On the other hand, despite the fact that unemployment has remained reasonably contained, employment creation is weak to negative, with the number of Hungarians in full time employment running at 2.75 million in November, 2.3 percent less than a year earlier. The government has shed 5.7 percent of its jobs in a year, reducing the number of public workers to 729,600. The apparent inconsistency between falling employment and steady unemployment is doubtless partly to be explained by the ongoing ageing of the Hungarian labour force.
Analyst Opinion
Raffaella Tenconi, Dresdner Kleinwort, London, as quoted in Portfolio Hungary
“The pick up in gross earnings was mostly the reflection of a negative base effect and a pick up in public sector wages. Private sector earnings rose by 7.6%yoy, down from 9% in October. Public sector income grew by 14%yoy, up from 8.5% in October."
“Earnings growth dropped by about 3 percentage points between October and November of last year as a result of changing in the timing of some bonus payments. Construction, real estate, renting and business activities remain the sectors experiencing the fastest wage growth within the private sector."
Excluding one-off payments, wages rose by 6.1%yoy, down from 6.8%. Private sector wages continued to grow rapidly, at 8.5%yoy, but moderating from 9.7%yoy in October.
“Net earnings (ex. tax payments) growth continued to recover, although adjusted for inflation earnings continued to fall in the private sector."
“Total employment fell by 2.3%yoy in October. Private sector jobs contracted for a fifth consecutive month and we expect this process to continue in coming quarters."
“It remains difficult to ascertain how much of the ongoing wage growth is due to the continuing whitening of the economy (more people declaring their full earnings) and how much is due to sticky inflation expectations."
“The outcome of the wage negotiations proved in line with the NBH assessment, but it remains to be seen whether these recommendations will be followed. Certainly, a weak labour market should keep wage pressures at bay. All in all, we expect the MPC to maintain a cautious stance in coming months, the next 25bps cut could come in late Q2 at the earliest."
Also we need to keep a close eye on what is happening in the stock markets at the moment. Yesterday Bloomberg ran this story:
Central European shares fell for a sixth day, led by OMV AG and PKN Orlen SA, the region's biggest refiners. Austria's ATX extended its drop from a July record to more than 20 percent, a common definition of a bear market.
The NTX Index of 30 companies in the region fell 4.2 percent to 1,716.37 at 1:08 p.m. in Vienna, heading for the lowest close in 10 months.
Austria's ATX Index lost 4.5 percent to 3,833.1, bringing the drop since closing at a record on July 9 to 23 percent. A bear market is widely defined as a decline of 20 percent or more in a 12-month period. Austria followed Poland, Singapore, Hong Kong, Sweden and Japan in entering a bear market after last year's U.S. subprime-mortgage collapse.
The Austrian banks are the most exposed should there be any large correction in central and Eastern Europe.
Update, Thursday Afternoon:
The same tonic continued today. According to Bloomberg:
Central European shares dropped for a seventh day, sending the NTX Index to a 10-month low. The Czech benchmark index entered a bear market, falling more than 20 percent from last year's high.
Komercni Banka AS, the third-largest lender in the Czech Republic, and PKN Orlen SA paced declines.
The NTX Index of 30 companies in the region lost 0.7 percent to 1,720.62 at 1:27 p.m. in Vienna as 18 stocks retreated, 11 rose and one was unchanged.
The Czech PX Index sank 1.6 percent to 1,545.50, bringing the drop since reaching a record on Oct. 29 to 20.2 percent. A bear market is widely defined as a decline of 20 percent or more in a 12-month period. In the region, the Czech Republic followed Austria and Poland, in entering bear markets after the collapse of the U.S. subprime-mortgage market last summer.
Poland's WIG20 Index retreated 0.8 percent and Hungary's BUX Index dropped 1.3 percent. Austria's ATX Index added 0.1 percent
As I say, this all needs watching very very carefully at this point. Could the correction be starting even as I write?
Friday, 18 January 2007: the sell-off continued for another day today, although Hungarian stocks actually rose slightly.
As Bloomberg report
Central European shares declined for an eighth day, the longest losing streak in two months. Erste Bank AG, Austria's biggest, and Komercni Banka AS led losses.
The NTX Index of 30 companies in the region declined 1.6 percent to 1,694.69 at 10.32 a.m. in Vienna, heading for the lowest close in more than 10 months. The measure has lost 8.2 percent this week.
Austria's ATX Index dropped 1.7 percent, the Czech PX Index slid 3.3 percent and Poland's WIG20 Index retreated 1 percent. Hungary's BUX Index added 0.3 percent.
Benchmarks in Austria, Poland and the Czech Republic dropped more than 20 percent from last year's highs this week, the common definition of a bear market, amid concern that the U.S. will enter a recession.
Erste Bank slid 2.1 percent to 39.05 euros today, while Komercni Banka, the third-largest in the Czech Republic, slumped 4.3 percent to 3,496 koruna. Raiffeisen International Bank Holding AG, Russia's biggest foreign lender, lost 1.6 percent to 79.68 euros.
Telekom Slovenije d.d. fell 1.9 percent to 340.20 euros. The shares have dropped 10 percent since Jan. 14, when the Slovenian government extended the auction of a 49.13 percent stake in its national phone company for a third time, with two bidders left.
Tuesday, January 15, 2008
Hungary Inflation December 2007
Hungarian inflation accelerated in December as oil and energy prices increased, producing what I think is a real problem as it makes it much more difficult for the central bank to seriously start reducing what is the European Union's second-highest benchmark interest rate. The inflation rate climbed for a third succesive month to 7.4 percent from 7.1 percent (even as domestic demand remains decidedly weak), the Budapest-based statistics office said today. Prices rose 0.4 percent from the previous month.
Core inflation, excluding volatile food and energy prices, rose 0.6 percent from the previous month and 4.8 percent from a year earlier. The full-year average inflation rate was 8 percent, compared with the central bank's November estimate of 7.9 percent.
Grain producer prices in the first 11 months were 67.8 percent higher than a year ago, while fruit costs rose 41.4 percent, according to the statistics office. Food prices account for 22.4 percent of the consumer-price index. The cost of vehicle fuels rose 2 percent in a month, while food prices were up 0.8 percent from November. The cost of cooking oil surged 9.2 percent, cheese was up 2.8 percent, baked goods and milk rose 2.4 percent each.
So even after economic growth slowed to 0.9 percent in the third quarter - the lowest pace in the EU, according to revised figures released on Dec. 7 - the pace of inflation will probably convince policy makers to put off cutting borrowing costs.
The ever interesting Dániel Bebesy, of CIB Bank, Budapest is quoted by Portfolio Hungary as follows:
The bank's rate-setting Monetary Council on Dec. 17 left the benchmark two-week deposit rate unchanged at 7.5 percent, the EU's second highest behind Romania, as policy makers pledged to keep inflation expectations from rising to prevent the effects of surging food and fuel costs from spreading across the economy.
So basically we all get to sit nervously biting our nails to see what January brings, and what else might happen in the meantime.
Core inflation, excluding volatile food and energy prices, rose 0.6 percent from the previous month and 4.8 percent from a year earlier. The full-year average inflation rate was 8 percent, compared with the central bank's November estimate of 7.9 percent.
Grain producer prices in the first 11 months were 67.8 percent higher than a year ago, while fruit costs rose 41.4 percent, according to the statistics office. Food prices account for 22.4 percent of the consumer-price index. The cost of vehicle fuels rose 2 percent in a month, while food prices were up 0.8 percent from November. The cost of cooking oil surged 9.2 percent, cheese was up 2.8 percent, baked goods and milk rose 2.4 percent each.
So even after economic growth slowed to 0.9 percent in the third quarter - the lowest pace in the EU, according to revised figures released on Dec. 7 - the pace of inflation will probably convince policy makers to put off cutting borrowing costs.
The ever interesting Dániel Bebesy, of CIB Bank, Budapest is quoted by Portfolio Hungary as follows:
“The breakdown reveals that food prices still remained elevated and explained the difference compared to our forecast. Nevertheless the 0.8% m-o-m increase is definitely smaller than during the previous two months. Consumer durables showed deflation again, and service prices hardly changed in December both are clearly positive for the NBH."
“Short based core inflation data however showed a 0.6% m-o-m rise, excluding processed food prices the figure came around 0.4% slightly higher than during the previous months, which might indicate slight pass through from rising food prices, and call for cautiousness."
“December CPI data does not clear the picture, regarding the monetary policy outlook the January data will be much more important. The forecasts are spread out in a wide range, our forecast is still below 7.0%, lower than the consensus."
“The timing of the administrative energy price hikes can be decisive. The service sector usually adjust its prices during the fist couple of months of the year, price increases should remain moderate showing no pass through from food price shock to reassure the NBH. Sharper than expected food prices mean that the 6.3% NBH CPI forecast for Q1 looks optimistic and likely to prompt the NBH to stick to its cautious monetary policy."
The bank's rate-setting Monetary Council on Dec. 17 left the benchmark two-week deposit rate unchanged at 7.5 percent, the EU's second highest behind Romania, as policy makers pledged to keep inflation expectations from rising to prevent the effects of surging food and fuel costs from spreading across the economy.
``In this situation, we have to return to our primary goal of reaching price stability,'' Gregor Simor said on Nov. 28. ``We have to follow monetary policy that will lead to this, and until we reach price stability, we basically can't pay attention to the growth aspect.''
So basically we all get to sit nervously biting our nails to see what January brings, and what else might happen in the meantime.
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