ECOSTAT NEWSLETTER
- January 2007 -

ECOSTAT'S ANNUAL FORECAST OF JANUARY
 

According to the evaluation of ECOSTAT the growth rate of Hungarian economy shall slow down in 2007 under further favourable external conditions, in consequence of decreasing domestic demand. Inflation will temporarily increase, while in the world market price advances of oil and raw materials can not be expected. The state budget deficit may decrease significantly, in the measure allocated in the budget.

The global economic cycle reached its peak in the second part of the previous year, after this the development rate has declined. The output of the currency zone and the world economy, which is mainly determined by the business cycle of the United States and the constant and dynamic development of the rising Asian countries, are not in line with each other. While the global economy and mainly the United States are in the slowdown period of the trade cycle, the economies of the Eurozone are in an expansive period. According to forecasts the growth of partner countries determinant for Hungary - Germany and other big states of the European Union - will not decline this year either.

The last few months have brought changes in the international raw material markets as well. It is favourable for our country that the oil market seems to calm down. In actual fact besides identical supply-demand conditions the price of oil fluctuated by about thirty percent. This indicates that in the tendency of prices the role of speculation is much bigger than it could have been thought earlier. In contradiction to the decline in oil price the price levels of other raw and basic materials have not decreased significantly, however forecasts presume lower average prices for 2007 than in 2006.

The developmental limits of Hungarian economy will be indicated by the narrowing of domestic demand in 2007. As a result of measures taken to decrease the state budget deficit private consumption will decline and investments will also lessen. The latter will be partially compensated by sources from the European Union. The turnover of foreign trade will henceforward dynamically widen, its rate will slow down to some extent compared to the previous year. The expansion of export may exceed that of the import by several percents, its balance may become positive for the second part of the year. Our prognosis assumes in total a 2.5% GDP increase in 2007, developments will probably accelerate starting from the second term.

Inflation worked out variously in 2006. At the beginning of the year the 12 month price index sank to a historical low point, near 2 percent, however at the end of the year the rate of annual increase in prices was 6.5 percent. On the basis of time series of the constant tax rate index it can be concluded that the decrease of consumer price index could have been mainly linked to tax changes (VAT, fiscal tax) in the last two years. Not counting those the price index hardly changed in 2005, while it could have increased at the beginning of 2006. In the last quarter of the previous year this correction was noticeable - partly as a consequence of administrative price rises and the price advances of food products. In the first part of 2007 an increasing 12 month price index can be assumed, but in the second part of the year the consumer price index may decrease significantly. We can prognosticate about 6.5 percent inflation as a yearly average.

The position of Forint has stabilized in the past few months - besides the rise of inflation. The monetary policy will probably react more "sensitively" to the information concerning future inflation - the exchange rate will be less determining. There may be a slow and cautious interest reduction.  According to our anticipations - in case of favourable conditions - by the end of 2007 the interest rate may decrease by 2 percent.

The financing requirement of the state budget will significantly decrease in 2007. According to our anticipations the annual 2.5-3% savings proportional to the GDP can be maintained. With this the objective set in the Convergence Program can be fulfilled. The reduction of the deficit can be linked to the rise of tax- and contribution incomes, the reduction of price support and the improvement of the balance of Health Insurance Fund.

The confidence indices of companies stabilized in the last months of 2006 after a decline of the second-third quarters, after a low point of September the boom indices have improved gradually.  In January 2007 the enterprising trust strengthened, the boom index of big companies may reach the positive range in one or two months. The moderately improving company atmosphere is in conformity with the planned growth of economy and the improving financial balance.