ECOSTAT NEWSLETTER
- October 2009 -

Monthly Forecast, October 2009.
 

The state of the economy has started to improve in the second quarter of this year in the US and Western Europe. With the economic rebound international business indicators are improving. As the global demand is held back by several factors the economic recovery will hardly be smooth, some declines can still emerge. The credit crisis has not yet been solved and the financial system is still vulnerable. Due to the improvement of the economies new orders an increase in production has already been noticed. The global recovery determines the Hungarian processes but it takes at least half a year to experience the partner countries economic developments. The decrease of the domestic production will hopefully stop in the 4th quarter. An upswing in the production will be realized in the second half of 2010. The unemployment rate will increase in the next year and domestic demand will grow slowly. This progress is likely to happen in two years time.

Gross domestic product

National output decreased significantly in the first half of this year, compared to last year the GDP decreased by 7,5 per cent. According to our forecast the scale of the economic decrease will be 6,5 per cent in 2009 and in the third quarter of this year a slow recovery can begin from the recession. Due to this the GDP can reach - 0,1 per cent in 2010.

International processes, foreign trade

Due to the governmental support and subvention the level of the decline has been more moderate in the bigger economies. The gross value added of the EU-countries decreased by 4,8 per cent in the second quarter of this year. The decrease was 3,9 per cent in the US and  6,5 per cent in Japan. The Hungarian foreign trade decreased in a huge amount in the first half of 2009 (compared to the same period of the last year, the export fell by 20 and the import by 25 per cent). According to our forecast the fall in exports will be 11,1 per cent, and 15,5 per cent in imports including services. We expect a progress in exports which can increase the imports either, so both can grow by 1,6 per cent.

Domestic demand

The drop of the household's expenditures was moderate in the second half of 2009. In numerical terms it means a 6,6 per cent decrease compared to the same period of the last year. The causes of the deterioration of the positions of the households are the conditions of the labor market and the credit market. The public consumption increased by a small amount. The allowances in kind will decrease by 7,2 per cent. The consumption of the households can drop by 6,2 per cent throughout the year. The demand of the consumption of the general government can slightly grow in the last quarter so the final consumption will decrease by 5,4 per cent.

Balance of payments

According to the balance's data the net lending/borrowing position of the country has improved. The causes include the improvement of the trade balance and the worsening ability of foreign companies in profit realization. The other items of the balance of current account have not changed essentially. The deficit will not exceed 600 million euros in the first quarter of 2009. The net lending/borrowing including the capital account improved considerably, because of the increase of capital transfers from the EU. We prognosticate a deficit of 2,9 billion euros. The balance will depreciate slightly in 2010. Our prognosis estimates a 3 billion euro deficit which derives from the external demand and it's import effect.

General government

The deficit in this year has already reached the level of the last years' time-proportionate deficit and it will further increase. This is due to a quite different macroeconomic and legal environment. The effect of the external demand together with savings can provide improvement in the second half. According to the 2010 budget draft the same amount will be available for the government as of this year. Next year the GDP related ESA deficit can be 3,9 per cent. Public debt will slightly increase in next year (proportionate to GDP) after that we can expect a modest decrease.

Inflation, base rate

The increase of the value added tax had a significant role in the increase of inflation. During 2009 we prognosticated a 4,4 per cent consumer price index which will further accelerate in the second half of the year. We calculate with a low level of inflation in 2010. We expect a faster growth in prices till the beginning of the next year, due to the increase of the official price and services which will culminate in the first quarter by 6,1 per cent. After that we expect less than 3 per cent price level increase in the second half of the year. The exchange rate will be stabilized at the level of 270 Ft/euro. At the end of this year we expect a 6 per cent base rate which can further decrease by 50 base point by the end of next year.

Labor market

The number of unemployed people increased by 100-110 thousand persons which could have been 160 thousand without the governmental support. We expect more lay-offs in this year and the unemployment rate can reach 10.5 per cent. The gross level of the average earnings will not change considerably in the private sector until the end of 2009. Under a 4.4 per cent inflation the purchasing power can stagnate in the competitive sector. We forecast an 8,3 per cent fall in the wages of public sector. The gross average earnings can increase by 2 per cent in 2010, but with the shift of the personal income tax the increase of the net wage can be even more. Some less affected by the economic crisis started to accumulate their savings.