periscope - mfb · 2017-10-08 · periscope periscope 2 february 2013 the strengthening of...

PeriscopeHungarian Development Bank’s monthly report

Feb

ruary

20

13

Authors:Erzsébet Gém Chief economistÁlmos Mikesy ([email protected])Zsolt Szabó ([email protected])

Publisher: MFB Hungarian Development Bank Private Limited CompanyEditor in chief: Erzsébet GémContact: Nádor utca 31. H-1051 BudapestTel.: +36 1 428 1772 Web: www.mfb.hu

The views expressed in the analyses published by MFB Plc reflect the

authors’ personal views and do not correspond in any circumstances

to the Bank official views. The analyses are based on data obtained

from credible sources but the authors do not take responsibilities for

their authenticity. MFB Plc and the authors are not responsible for the

accuracy of the forecasts.

F o c u sAutumn 2012 Investment Snapshot: The Results of MFB’s Corporate Survey

While MFB’s latest corporate survey (MFB INDICATOR) suggests that the proportion of companies implementing investment projects in the previous year has never been as low as in the autumn of 2012, the development activity projected for the next twelve months signals a favourable change and may even hit a record among large companies. However, the improvement in investment sentiment mainly results from the postponing of developments owing to the crisis. The pressure toward prospective increase in production and modernisations is growing as production assets are depreciated, yet corporate developments are held back rather than supported by the slowly improving but still unfavourable financing conditions, the falling demand in external markets and the domestic market outlook, which is at best slowly improving.

Corporate investment activity deteriorated slightly and also hit a record low in the period between spring and autumn in 2012. In the autumn of 2012, only 60.8% of the respondent companies reported to have realised investment in the previous 12 months, which is 1.5 percentage points lower than the value recorded in the spring and attributable primarily to the record low rate of enhancements and modernisations in the industrial sector (Chart 1).

Continuing the trend of the past years, most corporate developments carried out between the autumn of 2011 and the autumn of 2012 involved technological modernisation. Companies gave priority to defensive investments, as shown by an increase in the proportion of those opting for developments aimed at cost cutting and a simultaneous decline in the proportion of those entering a development track leading to a change in or the broadening of activities, which carries a higher risk but also promises a higher yield. The lack of corporate investment is a growing concern for the Hungarian economy: the volume of developments fell behind the planned level according to 26.3% of the respondent companies in the autumn of 2011, 43.0% in the spring of 2012, and 47.1% in the autumn of 2012. In particular, there has been a significant increase in the proportion of small businesses and industrial companies forgoing planned investments over the last six months (Chart 2). (Continued on page 2)

ῳ The foreign trade sector continued to wane in November 2012... (Page 3)

ῳ Further contraction in corporate lending, decreasing interest rates on corporate loans.. (Page 4)

ῳ Retail trade kept decreasing, while labour market stagnated at the end of the last year... (Page 5)

ῳ After last year’s record-high CPI rate the underlying inflation trends point to easing price pressure... (Page 6)

ῳ Despite the good global investment climate the HUF was unable to appreciate against the euro... (Page 7)

ῳ According to the budget data of December the deficit target of 3% was achieved in 2012... (Page 8)

Content

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Full sample Agriculture Industry Services

Chart 1: Proportion of companies realising investmentin the last 12 months

Sources: MFB INDICATOR corporate surveys

45.3%47.5%

26.7%50.8%

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Autumn 2012

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Fell behind plan Realised plan Overperformed plan

Chart 2: Realised corporate investments in comparison with development plans in the last twelve months

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Periscope

Periscope February 20132

The strengthening of investment intentions, which began in the autumn of 2011, continued in the autumn of 2012: at the time of the survey, 40.8% of all respondents were certain about planning developments for the next 12 months and 18.6% considered it likely (Chart 3). The improvement in investment sentiment is the result of the fact that the proportion of those considering investment only fell in the group of micro-businesses, while it grew in all other size categories (including companies focusing on the internal market), and investment readiness even hit a new record in the history of the survey in the segment of large companies.

The replacement of depreciated production assets cannot be postponed any longer in the Hungarian economy. This is proved, among other things, by the fact that, for the first time in the history of MFB INDICATOR, the need for carrying out postponed developments has become the number one motivation for investment. Moreover, in comparison with the spring survey, this was the only relevant circumstance which gave a new momentum to planned developments in the autumn (Chart 4).

Under growing pressure from depreciation and a weakening external demand, corporate development plans are less likely to be based on external markets than they were six months earlier. While most industrial sectors still have more confidence in the growth of exports than in an upturn in the internal market, the service sector has just the opposite view. Corporate optimism for domestic consumption has remained relatively strong among retail and wholesale companies. Among companies having ex-port links or planning entry in Far Eastern markets, there is a better than average investment activity, and the proportion of those planning to carry out modernisation or rising production has increased significantly over the last six months, which signals an eastward shift in the structure of Hungarian export relations (Chart 5).

Breaking the record of 53.4% set in the spring of 2012, 57.3% of the companies participating in the survey claimed to face capacity surplus in the autumn of 2012, which is a growing impediment to investment (Chart 6). The greatest barrier to corporate development was market uncertainty, followed by soaring borrowing rates, in the autumn of 2012. While circumstances have remained unfavourable despite a considerable improvement in the case of the former, there has been no substantial change in borrowing costs since the spring (Chart 7). Since larger companies continue to be better protected against the unpredictability of markets, their development efforts are hindered by this factor to a lesser extent than those of smaller businesses. Thanks to the relatively stable demand for their products, agricultural companies consider uncertain market conditions a less serious impediment than the average, while it was the deepest concern in the industrial sector in the autumn of 2012.

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Market competition

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Long overdue* scale from 1 to 5, 1 -least important consideration,5 - most important consideration

Chart 4: Rating of market related and technological motives behind investment plans for the next 12 months*


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3 – Other European countries

4 – Non-EU Balkan countries

5 – Former Soviet countries

6 – China

7 – Other Far Eastern economy

8 – North America

* total of companies certainly planning investment and companies likely to plan investment

** with a possibility to identify multiple markets

Chart 5: Proportion of companies planning investmentin the next 12 months* by current export markets**


1,752,002,252,502,753,003,253,503,754,004,25

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High interest rates

Lack of own funds

Prices of investment products

Credit scarcity

No demand for the expansion of production

Recently completed earlier investment projects

* scale from 1 to 5, 1 - least important barrier, 5 - most important barrier

Chart 7: Rating of investment barriers**


41.6% 36.5% 38.7% 44.8%35.5% 34.1% 40.8%

16.5%18.2% 16.8%

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* proportion of all responding companies

Chart 3: Investment plans for the next 12 months


19.4% 23.6% 18.0% 15.8% 17.8% 19.3% 21.0%

32.7% 26.4%27.9%

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34,.1 36.3%

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Chart 6: Development of production capacities


Periscope


Foreign trade and industryThe foreign trade sector continued to wane in November • The growth of the world trade remained below its long term average (in November 2012: +2.2% y/y) though the outlook

stopped to deteriorate at the end of 2012 (Chart 1). In Hungary both export and import decreased (by 4.3 and 4.6%) in last November (Chart 2). However, the surplus of the foreign trade balance remained high especially due to the falling import. During the first eleven months of 2012 the surplus was EUR 6737.4 million (in November EUR 659.5 million), which is lower only by EUR 22.7 billion compared to same period of the previous year (Chart 3).

• Manufacturing production fell by 6.4% (y/y) in November 2012, while export orders suddenly soared (+55% y/y). But it does not mean yet a real turn in the trend, because the Hungarian Central Statistical Office reported that it was caused by a large single order relating to a longer period. Based on the sector’s business confidence the decrease in manufacturing production may slow down or even stop at the start of the new year (Charts 4-5).

• In November 2012 construction output fell significantly again (-11.7% y/y) and additionally there was break in rise of the new orders which has lasted since the beginning of autumn (November 2012: -18.9% y/y).

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OECD CLI (LHS)World export** (RHS)World export long-term average growth between 2000 and 2010 (RHS)

Chart 1: Outlook of the world economy (OECD CLI*) and the world export (y/y)

* OECD Composite Leading Indicator: OECD members + Brazil, China, India, Indonesia, Russia, South Africa

Sources: CPB, OECD, MFB

** 3-month rolling average

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Trade balance (LHS) Export volume* (y/y, RHS)Import volume* (y/y, RHS)

Chart 2: Extrnal trade volume and trade balance in Hungary

Sources: HCSO, MFB

Chart 2: External trade volume and trade balance in Hungary

*3-month rolling average

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Chart 3: Trade balance in Hungary between January and November

Sources: HCSO, MFB

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Domestic orders (LHS) Export orders (LHS)Manufacturing production (RHS)

Sources: HCSO, MFB

Chart 4: Manufacturing production and new orders (y/y)

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ESI - Manufacturing (LHS) Manufacturing production** (y/y, RHS)

** 3-month rolling average

Sources: HCSO,European Commission, MFB

Chart 5: Manufacturing sentiment index*and manufacturing production

* ESI (European Sentiment Index)-20%

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Stock of orders at the end of the month* (LHS)New orders* (LHS)Construction output* (RHS)

Chart 6: Construction production and orders (y/y)

Sources: HCSO, MFB* 3-month rolling average

Periscope


Corporate lendingFurther contraction in corporate lending, decreasing interest rates on corporate loans• The effect of the interest rate cut cycle of NBH starting in August 2012 can be noticed increasingly in the price of corporate

credits: the interest rates on loans with maturity from 1 to 5 years and over 5 years fell to 9.47 and 9.31% in December, which means a 22 and 11-month bottom respectively. While the Hungarian corporations continued to get expensive loans compared to other Visegrád countries, the disadvantage against Bulgarian companies became less (Charts 1-2). In December the total amount of corporate loans fell by HUF 78 billion as a consequence of the transactions. The decrease of HUF 286.5 billion in 2011 was followed by another drop of HUF 367 billion last year. However, there was an increase of HUF 91.4 billion in HUF denominated loans in 2012 after the set-back of HUF 17 billion in 2011 (Chart 3).

• The balance sheet adjustment of the Hungarian banks continued in 2012: the LTD ratio reached 120.0% in November, a similar value of June 2004. The economic growth is influenced negatively by the fact that the proportion of the total amount of the corporate loans with maturity over 5 years in November was only 14.7%. The weak Hungarian performance has became less unique as with the exception of Poland slowing lending activity can be experienced in the CEE countries (Charts 4-6).

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Hungary

Czech Republic

Poland

Slovakia

Bulgaria

Romania

Chart 2: Interest rates on corporate loans* in Central and Eastern European countries

Sources: ECB, NBH, MFB

* annualised interest rates over 5 year maturity, weighted by month-end values, in national currency

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BUBOR

EURIBOR

HUF loans -over 5 years

HUF loans - 1-5 years

EUR loans in Hungary - over 5 yearsEUR loans in Hungary - 1-5 years

Chart 1: Interbank interest rates*, andinterest rates on corporate loans**

** annualised interest rates weighted by month-end values* 3-month interbank rates

Sources: ECB, NBH, MFB

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HUF loans Loans denominated in foreign currencies Total loans

Chart 3: Change in total amount of outstandingnon-financial corporate loans through loan transactions

Sources: NBH, MFB

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Indeterminate durationOver 5 years

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Proportion of credits over 5 years (RHS)

Chart 5: Maturity structure of corporate loans*

* loans offered by credit institutions (without MFB, EXIM, KELER)Sources: Hungarian Financial Supervisory Authority, MFB

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Chart 6: Change in total amount ofoutstanding corporate loans (y/y)*

Sources: ECB, MFB

* change in total value converted to euro

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Chart 4: Loan-to-deposit ratio (LTD ratio) of credit institutions*(June 2003 - November 2012)

Sources: Hungarian Financial Supervisory Authority, MFB

* without MFB, EXIM, KELER

Periscope


Consumption and employmentRetail trade kept decreasing, while labour market stagnated at the end of last year• The continuance of the recession in Hungary in Q4 2012 was reconfirmed by the data about slowing external trade and the

shrinking domestic demand. In November the decrease in retail trade accelerated: the yearly drop was 4.1% (while m/m: -0,4%) (Chart 1), which was (among others) a consequence of the permanent decline in net wages due to the high inflation environment (Chart 2).

• At the beginning of 2013 after several months stagnation the consumer confidence index picked up to the level not seen since autumn 2011 (Chart 3). Besides that, the reduction of overhead costs can foster consumption this year as well.

• Last year nearly 53 thousand new cars were sold in Hungary based on the registration data (Chart 4). It was 17.4% higher than in the previous year, but still only almost one third of the level of 2008 (153.3 thousand).

• The unemployment rate was 10.7% in Q4 2012 in Hungary, which equals to the data of the same period of 2011 (Chart 5). However, the outlook is worsening as the number of new not supported jobs continued to decrease and in December 2012 dropped to a level not seen in the last 5 years (Charts 5-6).

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Retail trade volume* Net real wages*

Chart 2: Retail trade and net wages in Hungary (y/y)

Sources: HCSO, MFB

* 3-month rolling average

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Month/month (LHS)

Year/Year (RHS)Sources: HCSO, MFB

Chart 1: Retail trade volume in Hungary

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Chart 6: Registered new supported and not supported vacancies

Sources: National Employment Service, MFB

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Consumer confidence Economic prospect Business sentiment

Chart 3: Sentiment indicators and economic prospects in Hungary

Sources: GKI, MFB -80%

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New car registration (LHS) Year/year (3-month rolling average, RHS)

Chart 4: New car registration in Hungary

Sources: ACEA, MFB

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Changes in number of employed persons (LHS)Changes in number of unemployed persons (LHS)Unemployment rate (RHS)

Sources: HCSO, MFB

* employed people andregistered job-seekers together

Chart 5: Changes in economically active population*and the unemployment rate

Periscope


InflationAfter last year’s record-high CPI rate the underlying inflation trends point to easing price pressure• The price of Brent crude oil rose to USD 112.9 per barrel in January from USD 109.4 in last December (Chart 1). • In 2012 both in the EU and the eurozone inflation rate exceeded the European Central bank’s target of 2.0%. Hungary

reached the highest consumer price index (5.7%) in the European Union (Chart 2). • In the last month of the previous year the inflation rate dropped more than expected and reached 5.0% (Chart 3), primarily

due to the decreasing fuel prices (Chart 4). However, besides the alcohol and tobacco products the fuel prices increased at the highest pace in 2012 (Chart 5). The rise in market energy and food prices proved to be higher than the average as well.

• Owing to the low domestic demand and economic activity, the midterm outlook points to easing price pressure: the sticky price index has been on a downward trend since September 2012, while the indicator of the demand sensitive products dropped to close to 2.0% at the end of the last year (Chart 6).

0% 1% 2% 3% 4% 5% 6%

SwedenGreece

GermanyFranceLatvia

BulgariaDenmark

SpainEA-17EU-27

BelgiumAustria

NetherlandsPortugalSlovenia

United KingdomLuxembourg

CyprusLithuania

MaltaFinland

ItalyRomania

Czech RepublicPoland

SlovakiaEstonia

Hungary

Chart 2: Consumer price indices in the EU member states*

Sources: Eurostat, MFB

* date for Ireland is not yetavailable

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Constant tax rate index Consumer price index Core inflation

Chart 3: Impact of changes in tax rates on comsumer prices

Sources: NBH, MFB-1%0%1%2%3%4%5%6%7%

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Foods Industrial productsMarket services Market energyAlcohol, tobacco FuelRegulated goods & services CPI

Chart 4: CPI by the main groups of goods and services

Sources: NBH, MFB

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CRB commodity price index (LHS) CRB foodstuff price index (LHS)Brent Crude Oil (RHS)

Chart 1: Commodity price indices and world crude oil price

Sources: Reuters, MFB

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CPI

Industrial products

Market services

Regulated goods & services

Foods

Market energy

Alcohol, tobacco

Fuel

2012 2011

Chart 5: Yearly changes of consumer prices by the main groups of products and services

Sources: MNB, MFB

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Demand sensitive inflation*Core inflation excluding indirect taxesSticky price inflation

Chart 6: Underlying inflation indicators (y/y)

Sources: MNB, MFB

*excluding changes in processed food prices from core inflation

adjusted for tax changes

Periscope


Exchange ratesDespite the good global investment climate the HUF was unable to appreciate against the euro• The global risk appetite continued to improve in January 2013 due to the solution of the so called ‘fiscal cliff’ problem in the

USA. However, in the HUF/EUR exchange rate it was only partly experienced as a result of the rising uncertainty regarding the future of the Hungarian monetary policy (Charts 1-2). The exchange rate of 292.3 HUF/EUR on the 31st January was the same as the rate at the end of 2012. The exchange rate climbed over 300 HUF/EUR in January after six months break, and the direction of the exchange rate reached the bond yields’ trend only at the end of the month, after the protection of the value of Hungarian currency had received more attention in the communication strategy of the government (Chart 3).

• In the favourable investment climate the euro strengthened against the key currencies, therefore the Hungarian forint appreciated by 2.6 and 2.2% against the US dollar and Swiss franc respectively (Chart 4). In January the Romanian leu strengthened by 1.4, while the Czech koruna and the Polish zloty depreciated by 1.9 and 3.0% against the common European currency respectively, so the performance of the Hungarian currency exceeded the regional average (0.9% depreciation) (Chart 5). Further improvement in the real economy outlook may lead to further appreciation of HUF (Chart 6).

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HUF/EUR (monthly average, LHS)

ESI (RHS)

Chart 6: The HUF/EUR exchange rate and theEconomic Sentiment Index (ESI) in Hungary

Sources: ECB, European Commission, MFB

improving sentiment

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CZK/EUR HUF/EUR

PLN/EUR RON/EUR

Sources: ECB, MFB

* 31.12.2012.=100%

Chart 5: The exchange rates of Central and Eastern European currencies against the euro in January 2013

strengthening against the euro

190200210220230240250260270280290

270275280285290295300305310315320

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HUF/EUR (LHS) HUF/USD (RHS) HUF/CHF (RHS)

Chart 4: The exchange rate of the forint against theSwiss franc, the US dollar and the euro

Sources: ECB, MFB

weakening forint

260265270275280285290295300305310315320325

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10-year CDS premium (LHS) HUF/EUR (RHS)

Chart 2: The forint to euro exchange rate and the 10-year CDS in Hungary

Sources: ECB, Reuters, MFB

Hungarian sovereign debt wasdowngraded to junk status 220

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VIX index (LHS)HUF/EUR (RHS)

Chart 1: The HUF/EUR exchange rate and the global risk appetite*

Sources: ECB, Reuters, MFB increasing risk appetite

* VIX stands for the volatility index of the S&P 500 and is often referred to as a global fear index

Hungarian sovereign debt wasdowngraded to junk status

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Correlation (LHS) HUF/EUR (RHS)

Chart 3 : The correlation between the HUF/EUR exchange rateand the 10-year yield on governement bonds

Sources: ECB, Government Debt Management Agency, MFB

* 20-days rolling average

Periscope


General government and its financingAccording to the budget data of December the deficit target of 3% was achieved in 2012• In 2012 the deficit of the central budget was HUF 620.1 billion, which is 89.9% of the annual target and is by HUF 1098.3

billion lower compared to the previous year. The improving deficit was mainly due to the fact that the revenues exceeded the previous year’s data by HUF 1046.9 billion, while the expenditures dropped only by HUF 51.4 billion. The corporate tax payments lagged behind compared to both the same period of the previous year and the annual target of 2012. However, the PIT and VAT income exceeded the annual target, the latter was basically the result of the standard VAT rate hike in January 2012 (Table 1, Chart 1).

• The deficit target of 3% seems to be realised in 2012 as a result of the fiscal adjustments made several times in 2012. In January the Hungarian country risk premiums increased (the 10-year CDS spread grew from 316 to 337 basis points) and the yield curve became more steep: the yields on 3-month treasury bills reached 5.38% at the end of January (+5 bps in January) while the yields on 10-year bonds grew from 6.11% to 6.34% in January. In the first month of 2013 the 10-year reference yield decreased only in Romania among the CEE countries, and the highest increase took place in Hungary (Charts 2-4).

Table 1: The revenues of the central government and the social security funds by main groups

thousand billion HUF 2011 2012

total income (estimation)

yearly revenue target

January- December

% of yearly revenuetarget

CENTRAL GOVERNMENT 8342.2 9549.0 9376.7 98.2%

Taxes imposedon corporations 1210.2 1402.6 1157.2 82.5%

Corporate income tax 316.6 356.2 342.3 96.1%

Simplified entrepreneurial tax 172.3 225.0 146.5 65.1%

Special taxes on banks and branches 358.4 342.0 165.6 48.4%

Taxes imposedon consumption 3132.3 3745.0 3702.7 98.9%

Value added tax 2219.5 2817.2 2747.4 97.5%

Excise tax 875.1 913.9 929.4 101.7%

Taxes imposedon households 1462.0 1677.2 1609.5 96.0%

Personal income tax 1382.8 1574.3 1498.4 95.2%

Social contributions (Pension Fund) 2594.1 2585.0 2595.9 100.4%

Social contributions (Health Care Fund) 617.6 709.1 726.2 102.4%

Sources: NGM, MFB

200250300350400450500550600650700750

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Yields on 10-year Hungarian government bonds (LHS)10-year CDS spread (RHS)

Chart 2: Yields on 10-year Hungarian government bonds and the 10-year CDS spread

Sources: Reuters, Government Debt Management Agency, MFB

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Chart 3: Reference yields on Hungarian government securites

Sources: Government Debt Management Agency, MFB

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Hungary Romania Poland Czech Republic

Chart 4: Yields on 10-year government bondsin Central Eastern Europe

Sources: Government Debt Management Agency, Reuters, MFB

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2 163.3 2 020.2 1 860.5 1 462.0 1 609.4

3 043.8 3 070.9 3 200.1 3 132.33 702.7

1 172.4 1 017.5 1 125.8 1 210.21 157.2

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2008 2009 2010 2011 2012

Payment of economic organizationsTaxes in consumption

Payment of households

Central budgetary institutions

Other revenues

Family benefits, social subsidiesPayments of central budgetary institutionsTransfers to gen. gov. subsystemsDebt service

Other expenditures

Balance of central budget

Chart 1: Revenues and expenditures of central budget (billion HUF)

value of balanceSources: HCSO,

NGM, MFB

periscope - mfb · 2017-10-08 · periscope periscope 2 february 2013 the strengthening of...

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