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Hungary

In its latest quarter inflation report, the Hungarian Central Bank raised its previous (from June) GDP growth forecast to 3.3% (from 2.9%) this year, inflation rate from 0% to 0.1% and the budget deficit from 2.7% to 2.8% of GDP. The Central Bank estimated that the Russian - Ukrainian conflict contributes a reduction in growth by 0.2% of GDP this year and the following year by 0.4% of GDP. Continuous pro-growth MNB (with increased source of funds for lending to small and medium-sized enterprises, had been granted 1.080 billion euro through commercial banks’ loans, till that time) should create 0.2% of GDP in 2014 and the financial compensation for borrowers (based on the act set week before about the settlement banks under the applicable spread rate and unilateral increases in the percentage of loans) should bring a 0.9% increase in the domestic consumption, which means 0.2%-0.3% GDP growth.

Due to the higher than expected data on GDP growth, GKI raised its previous forecast for 2014 to 3% (from 2.5%). According to the GKI, although (the Hungarian economic growth in the second quarter is the best result of their last 8 years, you can be sure that the result will not be repeated in the near future. The reason is the fact that, the dynamic GDP growth is primarily the result of temporary factors or “over-intensified” domestic demand, as a result of the pre-election economic policy (local elections will be held here on 12 October) and further intensive use of the EU funds. At the same time, however the domestic climate does not improve which makes it impossible to speak about the sustainable growth. Unchanged element of the GKI forecasts is the significant deceleration of growth from the second half of year, because of European economic improvement from the beginning of this year, EU development project, cuts from the government’s energy costs for households, already interacted as well as in the second half of the last year and therefore their impact in the economy will not be so dynamic (the GKI forecast for the 2015 GDP growth is 2%). Negative impacts on the Hungarian economy will be from the crises in the World as well as the nearest neighborhood countries. According to GKI, budget deficit could be maintained below 3% of GDP in both years but expected reduction of the state debt is not real.

The International Monetary Fund raised the GDP growth forecast for Hungary to 2.8% (from 2%) in 2014 and to 2.3% (from 1.7%) in 2015. Inflation this year is expected to be 0.3% and in 2015 – 2.3%. The unemployment rate in 2014 is expected to be 8.2% and next year – 7.8%.

The rating agency “Standard & Poor's” has left the Hungarian credibility rating unchanged: BB (non-investment category), with a stable outlook. For the current year, S&P forecast the growth at 3.2% and in subsequent years to 2.8% in 2015 and 2% in 2016, 1.8% in 2017. However, it draws attention to the fact that even with the current good pace of growth by the end of the next year; Hungary’s GDP will de facto reach the level of 2007. The agency assumes that the level of the state debt will remain at approx. 80% of GDP, also states that Hungary’s competitiveness in recent years, somewhat improved and labor costs are one-third of the EU average.

According to the data of the National Bank of Hungary (MNB), the gross debt of the state in the second quarter of the current year increased to 85% of GDP. The nominal amount is rated 25.437 billion HUF and that is 502 billion HUF higher than in the first quarter of this year and 2.352 billion higher than in comparison to the end of 2013. According to the report of the net amount of taken loans, gross debt increased to 437 billion HUF and the weakening of the forint has contributed to an increase in debt approx. 65 million HUF. Net debt amount of the state was 22.841 billion HUF (76.3% of GDP) at the end of June.

The prices of daily consumption products in August 2014 increased by 0.2% compared to the prices in August of 2013. Food prices by 0.1%, 13.0% flour, cooking oil by 12.5%, sugar 17.6%, seasonal food by 6.7%, wares by 3.6%, while cheese and milk prices increased (6.5%). Alcohol and tobacco prices went up about 6.4%. Energy costs for households decreased by 12.0% compared with the prior year, while the cost of network gas was lower by 16.9%, central heating by 11.4% and electricity by 11.1%, charges for water, sewerage approx. 1.6% and 1.4% and fuel prices increased by 1.4%. Clothing became cheaper by 0.3%, charges for local communication 6.8%, while service prices increased by 2.7%. While the prices of long-lasting consumption goods decreased about 0.2%. Compared to the previous month, consumption prices in August 2014 were lower by 0.2%, on average.[1]

In the period of June-August 2014, the unemployment rate in Hungary was 7.6%, the lowest in six years. In the analyzed period, the number of the unemployed was 341,000 people and was about 99,000 people lower (2.3%).

In the age group of 25-54 years, unemployment rate fell by 2.2% and amounted to 6.6%, in the 55-64 age group also - shrank almost 1.4% to 6.2%, and among younger people (15-24 years) the percentage was 21.1% and decreased by 6.8% compared with the same period a year ago. 50.6% of the total unemployed people looking for work for a period longer than one year and the average duration for being unemployed is 19.2 months. Analysts suggest that during the summertime, unemployment rate will rise again to a level of approx. 8%, as they emphasize, however, the employment statistics also include those who work abroad (approx. 0.5 million) and the employed in the so-called public works (several hundred thousand), however, distorts the picture.[2]

Hungarian Statistical Office (KSH) reported that in July 2014, industrial production in the y/y relationship recorded an increase of 12.3% (as well as after eliminating the calendar factors 12.3%). Compared to the previous month, after adjusting the calendar and seasonal factors, production index increased in July 2014 by 1.6%. Production in January-July was higher by 9.8% y/y. Exports of industrial products increased during the period by 15.3% y/y, domestic sales of industrial products by 4.8% y/y. The latest figures for August this year, however, show a significant decrease: the growth of industrial production in this month amounted to barely 2.9% (from January to August this year, growth amounted to 8.7%). According to analysts, one month break in August had a significant impact in production of the Audi factory in Győr.



[1] Hungarian Statistical Office

[2] Department of Political and Economic, Polish Republic Embassy in Budapest