According to the forecast of GKI Economic Research Co., although Germany’s rate of growth of GDP is decelerating, Hungarian domestic demand will start growing in 2011.
According to the forecast of GKI Economic Research Co., although Germany’s rate of growth of GDP is decelerating, Hungarian domestic demand will start growing in 2011. In Hungary external disequilibria will continue to improve and the rate of GDP growth will accelerate. It will be crucial in terms of the assessment of the Hungarian economy and thus future financial trends how credible the structural changes supporting medium-term sustainability of the 3 per cent general government deficit will be considered.
In 2011 Hungary’s GDP will grow faster by around 1 percentage point than the EU average, however, only the growth rates of Slovenia and Romania will be lower than that of Hungary in the region. Although Hungarian manufacturing will remain export-oriented, the increase of its export will slow down due to the deceleration of the German economy and the budgetary adjustments restraining domestic demand in several EU member states, whereas domestic sales will begin to grow slowly. Recession in construction will come to an end; however, no substantial growth can be expected in 2011.
Though the rate of inflation dropped to 4 per cent in January 2011 from 4.7 per cent in December 2010, its further continuous decline is unlikely. The reason for this is a sustained inflationary pressure caused by high world market prices of energy, raw materials and food, the postponement of raising the prices of public utility services before the municipal elections in 2010, as well as the return requirements of EU-funded public utilities. GKI survey results show that firms are also considering the possibility of lifting their prices. The government tries to prevent price increases by administrative actions but the various extra levies and planned tax increases under the banner of supporting healthy lifestyles all have inflationary effects. As a result, in 2011 the annual average rate of inflation is expected to be slightly over 4 per cent (energy, fuel and food price indexes will be higher).
The 6 per cent increase of minimum gross wages (to HUF78 thousand) hardly raises the net ones, thus real wages are likely to drop by some 3 per cent for these employees. Real earnings will increase by 2.5 per cent in 2011 with wide variations. A similar increase is expected in real incomes because stagnation in the real value of pensions and the decrease of other social benefits will be nearly counterbalanced by the disbursements of the real yields of private pension funds. Since mainly the position of those with higher incomes will get better–they will increase their savings–purchased consumption of households will go up less, only by around 2 per cent. As the demand of affluent people will mainly increase for cars and consumer durables, it will stimulate imports rather than domestic production. Therefore, the restructuring of taxes in 2011 will encourage the expansion of domestic supply (only at families with several children) insufficiently.
As a result of the expansion of domestic demand the former trend according to which the growth rate of exports exceeded that of imports will be reversed and imports will grow slightly faster than exports in 2011. The foreign trade surplus will hardly decline and the deteriorating profitability of firms, due to the extra levies, will also limit the increase of personal incomes. All of these factors will restrict the re-investment of profits, investments in general and domestic investments in particular. As a result of increasing EU transfers, the current and capital account surplus is expected to grow slightly.
The financial market is waiting for the government to launch structural changes. If international institutions and investors consider the actions of the government credible, a strong forint can be maintained and even a reference rate lowering cycle of the National Bank of Hungary may start. If they are disappointed, and especially if this will be reflected in the reactions of EU institutions and lower country ratings, a quick downturn may come. Uncertainty may last longer if the objectives of the programme are welcome but they are not specific enough and their implementation is doubtful. Now the exchange rate of the Hungarian forint to the euro as well as debt-financing and risk premiums depend on whether, after 9 months of “pregnancy”, a credible, enforceable, and reasonable long-term economic policy is born.
The forecast of GKI Economic Research Co.:
the Hungarian economy in 2011
|
|
2008
|
2009
|
2010
|
2011
(projection)
|
|
1. Volume of GDP (previous year=100)
|
100.8
|
93.3
|
101.2
|
102.7
|
|
2. Industrial production
(constant prices, previous year=100) |
98.9
|
82.3
|
110.5
|
109
|
|
3. Investment in the national economy
(constant prices, previous year=100) |
100.4
|
93.5
|
96.5*
|
104
|
|
4. Construction
(constant prices, previous year=100) |
94.9
|
95.7
|
89.9
|
102
|
|
5. Retail trade
(volume index, previous year=100) |
98.2
|
94.8
|
97.7
|
102
|
|
6. Exports
(current prices in euro, previous year=100) |
106.3
|
80.6
|
121.4
|
117
|
|
7. Imports
(current prices in euro, previous year=100) |
106.6
|
75.2
|
119.4
|
118
|
|
8. Trade balance
(EUR billion) |
-0.3
|
3.7
|
5.5
|
5.3
|
|
9. Balance of the current and capital account
(EUR billion) |
-6.8
|
0.8
|
3.7*
|
4
|
|
10. Average exchange rate of euro (in HUF)
|
251.2
|
280.6
|
278.7
|
278
|
|
11. Deficit of the general government
(cash flow basis, without local governments; HUF billion) |
909
|
918.6
|
870
|
690
|
|
12. Index of average gross earnings
|
107.5
|
100.5
|
101.4
|
103.5
|
|
13. Consumer price index
|
106.1
|
104.2
|
104.9
|
104.2
|
|
14. Consumer price index at the end of the period
(corresponding month of the previous year=100) |
103.5
|
105.6
|
104.7
|
104
|
|
15. Rate of unemployment (at the end of the period, per cent)
|
8.0
|
10.5
|
10.8
|
10.7
|
