ECOSTAT NEWSLETTER
- June 2004 -
 

ECOSTAT's FORECAST for the month of June

In view of ECOSTAT Gazdaságelemző és Informatikai Intézet, domestic economic processes will be characterised by a positive change of direction from the autumn of 2003, in harmony with the trend of the world economy. The question of the coming months is if this is a brief boom cycle or the real bases of a long-term upswing in developed economies. In Hungary the balance of payments on current account and the inflation have shown unfavourable signs in the past month.

The economic growth of the United States in the first quarter has extended only by 3.9 percent instead of the expected 4.4 percent, which surprised the market. The Fed raised the prime rate by 25 basis points on 30 June because of the danger of inflationary pressure. Until the end of the year, subject to inflationary processes, further interest rate increase can be expected.

In the spring of 2004 the economic prospects of the European Union has showed rather fragile signs of any boom. In the first quarter of 2004 the economy of the Euro region has exceeded the output of the previous three month by 0.6 percent, while the rate of growth of the European Union enlarged with ten new members has been also 0.6 percent during the same period. In the largest economies an increase higher by several tenth percentage point than a year ago has been recorded. Germany has outdone a three year record high, the widening of the GDP has reached 0.4 percent. The inflation of the 12 countries using the same currency has exceeded the 2 percent threshold value in the past months, primarily the rising price of oil has increased the Union price index.

On the grounds of the favourable GDP and investment data in the first quarter we can draw the conclusion that the Hungarian economy has returned to the investment and export controlled track of growth that characterised former years. The growth of household consumption has become smaller. The economy is basically drawn by industrial exports, processing industry investments have risen in the first quarter. In 2004 we have calculated with a relatively high rate of growth of the gross domestic product, which is ensured by, simultaneously with the improvement of the international environment, the increase of exports faster than last year, and the intensive widening of investments. On the grounds of favourable processes the GDP may rise by 3.8 percent this year.

On the basis of the preliminary data, the balance of payments on current account exceeded EURO2.8 thousand million in April. Pursuant to the new order of publication, however, the Hungarian National Bank has modified the data for the first quarter, which was EURO51 million more favourable than the records published as preliminary data. The worsening of flow of goods in April can be considered temporary, it was caused by the brightening up of foreign trade turnover before the accession. The service balance has shown a worsening tendency, there is no sign of any improvement in 2004 either. On the financing side it has been a favourable change that direct capital investment has significantly grown in the first four months. In total we prognosticate a deficit for 2004 similar to that of the previous year, but more favourable financing conditions.

The state budget deficit has been higher in May than expected by the Ministry of Finance. Although because of VAT settlements from imports the deficit index in the result approach can still improve in the second half of the year, revenues have been slightly less than expected. Pursuant to ECOSTAT's prognosis, deficit in the cash flow approach may reach Ft1250 thousand million. Calculating with the Ft250 thousand million exchange difference published by the Ministry of Finance, the deficit in the revenue approach may amount to approx. Ft1000 thousand million. Calculating with our present prognosis for growth, all this represents a 4.8 percent deficit in proportion to the GDP.

In May the 12 month consumer price index exceeded expectations, and reached 7.6 percent. In July because of the price increase of some products with administrative prices (public transport, medicines) inflation may still grow, but we have most probably passed the annual peak. In the rest of the year we shall calculate with a decreasing price index, by the end of the year inflation may become less than 6 percent. At an annual level, we prognosticate 6.7 percent average price increase.

The exchange rate of domestic currency has stabilised around 252 HUF/EURO rate. The interest rate policy is determined by the inflationary data. If the chances of disinflation grow, the prime rate may further decrease. With the current rate and the prognosticated inflationary trend, the rate level may drop below 10 percent by the end of the year.