Hungary’s GDP growth highest in the EU

Hungary has embarked on a period of economic growth which could put the country among the fastest-growing European Union member states

Prime Minister Viktor Orban said on the 25th of August,  addressing the annual meeting of Hungarian mission leaders.

 

Today’s news is that the Central Statistical Office (KSH) has confirmed their preliminary GDP growth figure: Hungary’s gross domestic product increased by 3.9% in the second quarter of 2014 compared to the corresponding period of the previous year.  That’s 0.8% on a quarterly basis.

Now this is the highest growth in the European Union.

KSH  has also revised the first quarter GDP growth data  today and they have upped  it to 3.7% year-on-year from 3.5% y/y.

Here’s the break-down of the growth data by sectors (on a quarterly basis):

 

 

Analysts warn that the growth will slow in the second half of the year because of the economic impact of the EU-Russia conflict. However the expected yearly growth of the Hungarian economy in 2014 is still 3.1%.

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Goldilocks economy in an Orbán-era?

A Goldilocks economy is

An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. There are no exact markers of a Goldilocks economy, but it is characterized by a low unemployment rate, increasing asset prices (stocks, real estate, etc.), low interest rates, brisk but steady GDP growth and low inflation.

Regulators use fiscal and monetary policy tools to try to create an economy with these conditions. Economic conditions abroad, and regulators’ reactions to them, also influence whether an economy can achieve a Goldilocks state. This state is ideal for investing, because as companies grow, stocks perform well, and in the absence of inflation, bonds will hold their value. If GDP grows too quickly and inflation creeps up too quickly, however, the economy can overheat and a bust can result.

The phrase comes from the fairy tale “The Story of the Three Bears“.  Similarly to the UK, Hungary may enjoy a Goldilocks economy now… and that may mean a Orbán-era ahead… with a lot of postcommie/leflib  whining about “checks and balances” for years to come.  I’m looking forward to that.  🙂

The Central Bank of Hungary has published their latest forecast today.  CBH expects 0.0% inflation for 2014  (as compared to their 1.3 percent forecast in March) and they increased their GDP growth forecast to 2.9% from 2.1% .  The public budget deficit is expected to stay below the 3% Maastricht requirement.   They also predict rising employment, decreasing unemployment and a steady real household income increase.

NBH forecasts

According to the latest poll by Tárki published yesterday,  political support haven’t changed much for any of the parties since the EP elections:  Fidesz-KDNP is backed by 56% of the decided voters (up from 54%), MSZP has 16% (down from 17%), Jobbik stands at 15% (down from 17%).

 

Two nations against EU orthodoxy

The European Union has embraced an economic orthodoxy defined by tight budgets, anti-inflation central banking and limited government fiddling in the economy.

But that orthodoxy is facing an uncomfortable fact: Two nations that have been challenging it in recent years—Hungary and the U.K.—now boast two of the 28-nation bloc’s best-performing economies.

Hungary and the U.K., neither of which are in the euro zone, are among several governments fighting back against what they see as unwarranted intrusion into their political life by unelected officials at the European Commission, the EU’s executive arm

Economic recovery in Hungary, in the UK and the EU

writes the Wall Street Journal.

Bye, bye, Danone

“Due to a significant decline in sales”, international food company Danone is closing sites in Hungary, Germany and Italy, the company has announced on Wednesday.

 

 

Why is this interesting on this blog about Hungary’s politics?

Well, Danone has become a kind of a symbol of  cheap “halálmiszer”.  That’s a portmanteau of “halál” (death) and “élelmiszer” (food, “élet”  means ‘life’, “szer” means ‘stuff, substance’).

One couldn’t buy that kind of artificial, chemical food in the justly condemned Communist dictatorship I grew up in.  I’ll risk the statement that such “food”  products, for example like Danone yogurts, were not sold in Hungary even before our joining the EU in 2004.

Here are a few of their deceiving marketing gimmicks Danone has been selling their cheap, and possibly unhealthy, stuff with:

  • They substituted milk for something who-knows-what  in their kefir in 2008 and then they kept selling it at the same price, in the same packaging. Okay, they had to reverse this quickly enough.
  • Their 175 gram yogurts were reduced to 150 grams first and then to 125 grams… for the same price.

  • Their  big marketing campaign “Könnyű és finom” (Light and Tasty) was actually about removing fruit content from their  fruit yogurts.
  • The labels on their yogurts read like this: “Ingredients:  milk, sour cherry substance 13% (sour cherry 60%, …)”

 

Let’s see what Wikipedia writes about the health effects of one of these ingredients, called Xanthan-gum:

Evaluation of workers exposed to xanthan gum dust found evidence of a link to respiratory symptoms

On May 20, 2011 the FDA issued a press release about SimplyThick, a food-thickening additive containing xanthan gum as the active ingredient, warning “parents, caregivers and health care providers not to feed SimplyThick, a thickening product, to premature infants.” The concern is that the product may cause necrotizing enterocolitis (NEC).

Xanthan gum may be derived from a variety of source products that are themselves common allergens, such as corn, wheat, dairy, or soy. As such, persons with known sensitivities or allergies to food products are advised to avoid foods including generic xanthan gum or first determine the source for the xanthan gum before consuming the food.To be specific, an allergic response may be triggered in people sensitive to the growth medium, usually corn, soy, or wheat  For example, residual wheat gluten has been detected on xanthan gum made using wheat.This may trigger a response in people highly sensitive to gluten. Xanthan gum is a “highly efficient laxative,” according to a study that fed 15 g/day for 10 days to 18 normal volunteers. Some people react to much smaller amounts of xanthan gum with symptoms of intestinal bloating and diarrhea.

 

Danone is part of a bigger problem though:  Hungary has been flooded with junk food by the West, often with stuff they couldn’t even sell in Western Europe, and people, either because of ignorance or because that’s what they can afford , feed on this junk. “Free market proponents” would argue that people vote with their money.  I’d say the Hungarian state should protect Hungarians with administrative measures, too, from literally junk food.

I avoid shopping in Tesco  supermarkets in Hungary because they suck so much.  Shopping in British Tesco shops is fine with me.  The icing on the cake is that prices don’t really differ so  much…  The  difference often lies in the quality of goods these multinational companies sell in Hungary and in Western Europe.

Anyway, will Danone leave Hungary? That would be good riddance.

 

Related articles

 

Unorthodoxy explained

Prime Minister Orbán took  his prime ministerial oath on the 10th of May and this event could be regarded as the birth of the third Orbán government. He and his Fidesz party promised to “carry on” (“folytatjuk!”) .  So what is it they’d carry on with, say, regarding the economy? Let’s recap what the “unorthodox policies” of the second Orbán government, which seems to result in Hungary’s well-visible economic recovery, actually meant.

When, despite all the economic success the first Orbán government achieved,  they were voted down by the Hungarian voters in 2002,  the  Socialist-left-liberal governments resorted to  accumulating foreign debt in order to manage the huge budget deficit problems their inappropriate economic policies caused.  So even though the first Orbán government decreased the dept-to-GDP ratio to 54% from around 65%, when  the international economic crisis broke out in 2008, the  Hungarian economy was already in a very weak position: the dept-to-GDP ratio was nearing 80% … and the  biggest part of this debt was foreign debt in foreign currencies.  Bankruptcy was imminent and taking out an IMF-EU loan was the only way to avoid it. Despite all the postcommunist/left-liberal propaganda, the truth is the terms of the loan were far from attractive: it came with thick neo-liberal strings attached: sell out your assets and tax people, not multinationals and banks.  Eventually when the second Orbán government took power in 2010, there was hardly  any economic elbowroom for them.  The IMF loan was a carefully set-up political booby-trap in essence.  If  Orbán had followed the IMF path then his political credibility would have evaporated in no time and the postcommunists would have returned yet again in a few years, just like the Communists returned as Socialists in 1994. Charging forward was the only way.  The actual budget deficit was more like 7% in 2010 instead of 4% what the Socialist Bajnai government put on paper.  Paper doesn’t blush…

It quickly became evident in 2010 that the  IMF and the EU  had no intention of renegotiating the terms of the loan their sidekicks  left behind and they demanded the usual austerity measures from Orbán they always do: tax hikes for people, cuts in benefits and public services, selling state assets.  Cutting links with the IMF was practically inevitable if Orbán wanted to go in a different direction.  He did so, accompanied with a political rhetoric of “economic freedom fight”.   The phrase “freedom fight” goes  down well with the Hungarian soul even if we’ve had many freedom fights and none of them were successful (at least directly).  Orbán bravely refused to accept the terms for  Hungary’s having the IMF safety net despite the huge political, and also economic, pressure put on him.  This policy alone made the already bad foreign press of Hungary even worse. We  became a “dictatorship” very quickly.

When Europe’s economic storm drastically worsened in 2011,  Orbán  bravely “pulled a Turkey”:  he invited the IMF back to the negotiating table… and he started playing for time just like Turkey did once.  He kept negotiation hopes alive for more than a year, making the markets believe that sooner or later Hungary would have the IMF safety net back.   In the meantime it became evident  that the IMF, certainly also because of  their political motives, was not willing to make concessions.  In fact,  they wanted to punish Hungary hard for  Orbán’s  policies, probably as a way of  deterring  other European countries from following similar policies.  During this economic storm EU/IMF had the prime ministers of Italy and Greece replaced with their stooges and by the end of 2011, the beginning of 2012 they tried to do the same thing in Hungary. That was when half a million Hungarians took to the streets of Budapest on the freezing cold day of the 23rd of January, 2012 and they said a big no to this attempt. Polls also showed Fidesz and Orbán had a strong enough political support, so he took the leap:  Hungary sent IMF home … and eventually paid the IMF loan back one year earlier  in order to send the message to the markets that Hungary had enough self-confidence to follow its own course.  The other very important milestone of success was when EU eventually, very reluctantly indeed, had to let Hungary out of  the Excessive Deficit Procedure in 2013. This further increased market confidence in Hungary.

 

Hungary’s budget deficit as a percentage of GDP

 

In order to balance the budget and to stop the increase of  public debt,  without resorting to “classic” austerity measures,  two major things were needed: taxing banks and multinational companies like the supermarket chains and effectively nationalizing the compulsory private pension funds.

It was beyond any doubt Orbán had the support of the Hungarian public for the former. There was/is public anger towards the banks because of the role they played in the economic crisis, especially because of all the hardship  the widespread foreign currency based mortgages caused for hundreds of thousands of people when the exchange rate of the Hungarian Forint plummeted during the crisis. People were also well aware that the banks had been heavily subsidized from taxpayers’ money before.  Let me note that eventually Orbán’s example of taxing the banks in order to manage the crisis was copied by a number of Western governments, even though the financial sector in Hungary was  hit harder this way than in other countries.  The stable and strong (supermajority in the Parliament!) political support, together with some domestic media support, allowed Orbán to push this unprecedented move through.  However Hungary’s press image in Europe and in the US  got even worse and darker. Hungary became a totalitarian dictatorship, a Nazi one. No doubt at all that the heavily taxed influential foreign financial institutions  played  their own important role in this process.

A Le Monde cartoon

 

The Hungarian Central Bank (MNB) was another important battlefield.  The bank chairman, András Simor, who was nominated and elected by the Socialist-left-liberal regime in 2007,  was a left-liberal and in fact he proved to be a real IMF stooge.  It turned out he supplied IMF with info, in a way which was bordering on crime, and most importantly and he and his men in the Monetary Council kept the base rate unreasonably high. The high base rate, not really justified by the inflation figures, resulted in very high interest payments on Hungary’s mounting debt and it was killing any kind of  chance for economic growth.   The government crossed with Simor and “the threatened independence of MNB” became a major worry  in the global (Western) media. In contrast, there was deep silence in the very same newspapers  when the Dutch prime minister directly intervened who the central bank chairman should be…

The chart also shows when Simor left office: that’s when the base rate started decreasing in 2013.

 

What was the story with  the private pension system?  The left-liberal Horn government introduced a two-pillar pension system in 1997.  Later the voluntary private pension funds made this a three-pillar system.  They kept the old state pension system, inherited from the pre-1990 Communist regime, for the elderly generation and they introduced a new private ‘pillar’  . The younger generations were forced to join these private pension funds. Practically the state created a guaranteed clientele for private businesses and the Hungarian state administration also collected pension contributions for these .  These pension contributions, of course, were missing from the state pension fund and that made a bigger and bigger hole in the state finances in each year… This was “plugged in” by more debt, “of course”… You get the idea.   Besides these obligatory private pension funds were ripe with corruption.  Their boards were filled with left-lib cronies, e.g. trade union leaders.  These mandatory private pension funds charged ridiculously high handling fees (like 5% per year!) and they produced  poor returns for the members.  No wonder they were quite unpopular with the public and the Orbán government could easily get hold of their assets.  The government payed out the individual members but they took over the capital in these funds and then they used it mostly to balance the state budget.  Note that the voluntary private pension funds were left alone.

Introducing a flat tax regime in order to encourage economic growth was another important element of the “unorthodoxy”.   A flat income tax may sound very unjust but  consider the huge tax breaks families were given and you’ll see that the goal is to strengthen Hungary’s weak middle class.  Making the middle class stronger, besides the obvious social-political benefits, then helps internal market demand increase, that is it stimulates economic growth.

Another major policy was what the British government later  put as “no more something for nothing”.  The Orbán government has been providing hundreds of thousands of people, who used to be on benefits, with “public work”.  Though this drove unemployment down and increased economic activity, it even must have increased consumption to some extent, but the most important goals may not be economic ones.
I must also mention “rezsicsökkentés” (cutting the costs of household services) which proved to be a very popular, possibly election-winning, measure.  The government made the costs of household services, including electricity, water, gas and other public services decrease by 20 percents or so by law.  Utility bills were relatively high in Hungary by European standards and most of the utility providers are again foreign owned.  The measure also reduced the inflation rate very significantly and eventually we saw something unprecedented in Hungary: the yearly inflation was minus 0.1% in March.

Orbán made his confidante, his economy minister,  György Matolcsy the central banker after  the office term of  left-lib IMF stooge András Simor was up.  It’s difficult to say how much of the above things could be attributed to Matolcsy but possibly most of them.  He and his men in the Monetary Council slowly cut the base rate to historic lows, and that obviously growth-friendly, while Hungary managed to keep the financial balance.   The budget deficit has been below the Maastricht criteria of 3 percents since 2011.  The Hungarian Forint exchange rate  fluctuated a lot but eventually Forint didn’t weaken too much. The weaker Forint boosted exports and hindered imports.  Hungary has a very high balance of trade now and that is going to strengthen Forint sooner or later.   Despite the low base rate, the yield of Hungary’s 10-year T-bill has sunken to 5.1%.  (In comparison that was 12.2% in the March of 2009!)

Matolcsy, as a bank chairman, also initiated a “Lending for Growth” programme: the central bank lends money at zero percent to banks for specific purposes, like SME-financing or reducing exposure to foreign currency loans, and the banks are allowed to charge only  2.5% at most.  His latest move is that the 2-week T-bills are to be converted into bank deposits and foreign banks and funds will be barred from having their money parked in MNB.  This effectively pumps liquidity into the economy.  Another strategic direction to strengthen the economy is a strong push to convert foreign currency public debt into Forint debt.

 

It’s time I finished this post. Please feel free to comment if you  have questions or you want to know more.

 

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Surprise at surprise

“Hungary delivers economic surprise on the positive side” is becoming a unsurprising headline. The Central Statistical Office (KSH) has revealed today that Hungary’s economy grew by 3.5 percents  in January-March on a year-to-year basis:

 

Hungary’s GDP

So everybody is very surprised yet again…

The analysts’ expectations two days ago

…  just like everybody was surprised at the -0.1% inflation rate announced a few days ago (0.3% was “the consensus of the market”).

 

To put this in context, here are the latest data for the CEE countries:

 

GDP growth in some Central and Eastern European EU-member countries

 

 

Besides Hungary’s T-bond yields also plummeted  today:   For example, the average 10-year bond yield dropped  by 56 bps to 4.79%, with a big (4.4) bid-to-cover ration,  from 5.35%  two weeks ago. That’s a new historic low in Hungary!   Practically this means the financial market price Hungary’s bonds in the “investment grade” category  but the credit rating agencies don’t bother: they keep rating Hungary in the “junk” category.

 

Update: today’s data is that the construction industry output grew by 34.2% on a yearly basis!

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First PM visit in Warsaw again

Having President Áder asked PM Orbán formally to form his new government this morning, Mr. Orbán left for his first visit abroad. Just like in 2010, when Fidesz won another landslide victory, his first prime ministerial visit was paid to Poland again.

“The next Hungarian government will also be deeply committed towards the historic Polish-Hungarian friendship” and “as in the last four years, the new Hungarian government wants to focus on Central Europe in its foreign policies”, Orbán said. He also thanked Polish Prime Minister Donald Tusk the support Hungary has received from Poland since 2010.

First visit in Warsaw again

The Polish prime minister also emphasized the importance of the traditional Polish-Hungarian friendship and the fact Mr. Orbán visited Poland first. He also praised the Visegrad Four cooperation and Hungary’s presidency of the V4 which is ending at the end of June.  Concerning the recent election results in Hungary, he noted that “Hungarians appreciated the values the party alliance led by PM Orbán represent”.

The “energy union”, proposed by PM Tusk and fully backed by PM Orbán, was the most important topic of the talks. This means that at least the V4 countries would fully integrate their energy supply systems (gas and electricity networks) and they would strive to achieve “energy independence”, for example getting rid of a complete dependence on Russian natural gas.
The prime ministers have briefly discussed the Ukrainian situation, too, and they noted the Hungarian and Polish views and interests are similar: both countries are neighbouring to Ukraine and Hungarian and Polish ethnic minorities live in Ukraine.

All I can say  (in Polish) is

Polak, Węgier — dwa bratanki,
i do szabli, i do szklanki,

Please read this Wikipedia article for more details.

 

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World Car of the Year 2014

2014 World Car of the Year

is manufactured in Győr, Hungary.

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More news about Hungary’s improving economy

There was a very strong demand for Hungary’s T-bonds on yesterday’s  auction and this prompted the State Debt Management Agency to increase the issuance.  At the same time the bond yields were three to twelve basis points lower than at the previous auction held a fortnight ago.

Hungary’s construction industry output showed  a whopping 28.3% year-on-year growth in February.

Construction industry output

The industrial output was 8.1%  higher in February than a year earlier.  The month-on-month growth was 1.6%.

The gross average monthly wages in Hungary were 1.7% higher in February than a year earlier. Excluding those employed in public work programmes , the figure shows an increase of 6.9 percents!  The monthly gross wages averaged HUF 240,000 per month, 5.2% up year-on-year, in the private sector alone.

Pre-tax wages

Hungary’s inflation was flat at 0.1% year-on-year in March and it’s yet another  “surprise to the downside”.  The “market’s call” was for a 0.3% CPI. Core inflation measures declined again which confirms the absence of underlying price pressures.

 

Inflation rate

 

The central bank continued with their cutting the base rate which is at a historic low of 2.6% now.  Let’s note that the base rate was 7% when Hungary could get rid of bank chairman András Simor, a neoliberal/postcommunist stooge of the IMF. BTW, Hungary’s international reserves jumped to a new 2.5-year high at 36196.70 EUR millions.

 

Base rate

 

Hungary’s  balance of trade surplus jumped to EUR 766 million in February from EUR 482 m in January.  The surplus was EUR 118 million higher in annual terms than a year before.   Exports and imports (in EUR) increased by 5.0% and 3.5%, respectively in February, 2014 compared to the February of 2013.

 

Balance of trade

By December 2013 – February 2014, the number of unemployed people decreased by 123 thousand to 379 thousand over one year, and the unemployment rate diminished by 3.0 percentage points to 8.6%.

Unemployment rate

 

Employment in Hungary is at an all time high. The number of employed people was 4,053 thousands in February which is 236 thousand more than a year ago. The employment rate of people aged 15-64 increased to 60.4%.

Employment time series

 

Those London economists are surprised on the upside at the GDP growth  yet again.  JP Morgan revised their forecast for this year to 2.5%. Capital Economics expects 3.5% GDP growth and they write:

What’s more, the recovery seems to be broad based. Not only are export-led industrial sectors improving on the back of stronger demand from the euro-zone, but consumer spending is also staging a (long-awaited) recovery

This is the latest (2013Q4) figure, compared with other countries:

GDP growth in Europe

 

In the meantime the three big credit rating agencies carefully keep Hungary’s bonds in the junk bond category and economic newspapers like Financial Times, The Wall Street Journal, The Economist, etc. are all whining about Hungary’s autocratic tendencies, anti-Semitism and what have you.    In the meantime  The Jerusalem Post asked in their usual “Nazi Hungary” editorial that

Why would Hungarians support a party and a prime minister that legislate policies that hurt their weak economy ?

I think the above economic figures themselves give a good answer . Though I doubt very much indeed that the author(s) of  the Jerusalem Post editorial  wouldn’t have known these facts otherwise.

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Thus spoke Holy Market

Oh, well, the economic analysts were wrong again, consumer prices in Hungary increased only by 0.1% in February compared to February 2013 instead of what their consensus figure (0.5% yr/yr CPI) was. 🙂

Inflation rate in Hungary

Another  recent economic figure  is that Hungary’s already huge trade balance figure grew to 7.3 bn EUR last year from 6.7 bn EUR in 2012.

According to Portfolio, the Market  thinks  the return of the postcommies  would be the best outcome of the elections from an economic point of view. 🙂  Yes, Holy Market wants MSZP and its splinters , that is “Kormányváltás” (Change of Government)  which is their new name since last week, changed from  “Összefogás” (Unity).  Fortunately the Hungarian voters don’t seem to want them.

The Market has spoken?

 

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