ECOSTAT NEWSLETTER
- April 2004 -
 

ECOSTAT ANNUAL PROGNOSIS for April

According to ECOSTAT Gazdaságelemzõ és Informatikai Intézet, our country’s economic prospects are continuously improving, real economy indices and boom indices indicate growth. The pace of growth of the European Union continue to fail to reach the required level, prospects for growth have been modified by IMF at the end of April; nevertheless, the pace of development of the region is nearing half of global average. Slight growth of external demand has pulled domestic industrial production along. Balance indices are expected to be fragile but are improving in their tendencies.

In the United States of America interest production expectations have strengthened, and the weakening trend of the dollar has turned round. Significant tax reduction and major increase of expenses have generated a dynamical economic development; on the other hand, measures have led to budget deficit. External deficit reached a historic high at the end of last year, and attempts to improve the worsening tendency have failed at the beginning of this year.

In 2003 the pace of growth of the European Union remained below 1 percent. In 2004 dynamism is expected to exceed that of the former year to a low extent. GDP will presumably grow by 1.5 percent. Germany, the largest economy in the Union, Hungary’s receiving market can only generate growth below the Community average.

In the Hungarian national economy, real economy processes having been improving for three quarters and government measures taken to reduce state budget deficit are successful; our country’s economy carry the marks of booming and improving balance. On the grounds of favourable macroeconomic indices, indices of trust and orders, and international prognoses, the growth of the Hungarian economy in 2004 can reach 3.5 percent. The role of private consumption in growth lessens; it is replaced by the widening of industrial production, investments and exporting of goods. The rate of employment slowly rises, the growth of production is basically ensured by improvement of productivity.

In the first two months of 2004, industrial production has grown by approx. 10 percent. Domestic sale has somewhat widened, the output of the industry has been drawn primarily by imports. Export sale continues to change subject to the demand of Germany, Austria and Italy for consumer goods. At an annual level, an industrial growth of 7-8 percent can be presumed.

State budget deficit in the past months has developed in accordance with the prognosis of the Ministry of Finance. In May and June, primarily due to changes in VAT on imports, deficit in the cash flow approach (GFS) will significantly increase. In the results approach (ESA) annual deficit can be kept below 5 percent.

In February the balance-of-payments on current account further worsened. By the end of the second month, external deficit rose above EURO1 billion pursuant to the new method. The merchandise balance has somewhat improved, which is indicated also by the foreign trade statistics of the Central Statistical Office; the balance of services worsened in the first two months of the year. The volume of direct foreign capital investment is rising at a slow pace; its proportion in financing current payments continues to be low, some movement can be observed on the financing front. For 2004 we can prognosticate EURO5.7 billion external deficit.

The extraordinarily high, 12.5 percent prime rate evolved in November 2003 was reduced to 12 percent by the Note Bank in two steps by the end of April. The exchange rate of the home currency fluctuated around 250 Ft/EURO, between the extreme values 245 and 255. In addition to the slowly stabilising exchange rate, the note bank base rate can be further reduced, and can be decreased to 9.5 percent by the end of the year.

Inflation has developed better than expected by the end of the first quarter. In the first three months, average rise in prices has been 6.8 percent in the aggregate. The 12 month consumer price index for April and May is expected to rise, however, the price index is not expected to become higher than 7.5 percent in the coming months. In the second half of the year, inflation will be slower; we can prognosticate a 6.5 percent price index as a yearly average.