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PeriscopeHungarian Development Bank’s monthly report
O
cto
ber
20
13
Authors:Erzsébet Gém Chief economistÁlmos Mikesy ([email protected])Zsolt Szabó ([email protected])Klaudia Stankovits
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 sInflation trends in the European Union
In August 2013, low economic activity and decreasing raw material prices caused a further easing of inflationary pressure in both the European Union and the United States. In the eurozone, the primary factor holding back consumer price increase were the prices of telecommunication services, whereas in Hungary it was the reduction of household energy prices. So far, neither household demand nor trends in corporate lending indicate that inflationary pressure in the eurozone would grow over the next few months; meanwhile, Hungary’s consumer price index can remain low thanks to an additional ‘overheads cut’.
After August, the prices of most commodity market goods on the global market continued to decrease in September. A notable price drop of more than 30% year-on-year was observed in the case of corn and silver, while the prices of cereal and gold also fell by more than 20% compared to the end of September 2012. S&P’s commodity price in-dex, which shows the cumulative effect of changes in industrial raw material prices, indicated a 5.0% year-on-year decline in September 2013. The decrease of raw material market prices will not generate increasing inflationary pressure over the next months, but the continuation of the Fed asset purchase programme in the US might, in the long term, contribute to the emergence of commodity market bubbles, pushing up consumer prices. However, since the programme is expected to slow down in the near future, it will probably not have a notable inflationary effect in the US (Chart 1).
August 2013 saw a significant slowdown in the increase of consumer prices in both the US and the eurozone. The annual inflation rate in the US fell from 2.0% in July to 1.5% in August, which was due mostly to decreasing raw material prices and modestly increasing energy and food prices. Meanwhile, the harmonised index of consumer prices in the eurozone fell from 1.6% to 1.3%, and preliminary statistical data indicate a further slowdown in September, with the annual rate of price increase diminishing to 1.1%, a record low not seen since early 2010. (continued on page 2)
ῳ Beside the improving global economic outlook the domestic demand can also foster the GDP growth in Hunga-
ry... (Page 3)
ῳ The record high Hungarian net financial capacity was partly a consequence of the rising EU transfers... (Page 4)
ῳ The recovery of external demand can support the domestic manufacturing sector in H2 2013... (Page 5)
ῳ Accelerating investments in the Hungarian economy... (Page 6)
ῳ Improving expectations, low inflation and decreasing unemployment boost the consumption... (Page 7)
ῳ The number of new not state-supported jobs steadily increases in Hungary... (Page 8)
ῳ In contrast with the expectations Hungarian consumer price index fell significantly in August... (Page 9)
ῳ In August the effects of monetary policy measures could be noticed on lending activity... (Page 10)
ῳ Rising corporate demand for financing is expected by the banks for the next months... (Page 11)
ῳ The monetary easing influences the price of Hungarian assets to a high degree... (Page 12)
ῳ Tight budget, sinking government bond yields... (Page 13)
Content
-41.6%-37.2%
-25.2%-23.9%
-19.9%-15.4%
-13.3%-12.5%-11.2%
-11.2%-8.8%-7.7%
-5.0%-3.7%
0.9%10.1%
-50% -40% -30% -20% -10% 0% 10% 20%
CornSilverGold
WheatSoya
PlatinumAluminium
Industrial metalsSugar
CopperZinc
Lead
Brent Crude OilEnergy
Livestock
Chart 1: Changes in commodity prices in the yearbefore 30 September 2013
Sources: Reuters, MFB
S&P GSCI Commodity index
Periscope
Periscope October 20132
Among EU member states, the largest year-on-year inflation increase in August 2013 was experienced by Estonia (3.6%), while consumer prices in Greece fell at a rate of 1.0%. In Hun-gary, the harmonised index of consumer prices as calculated using a uniform European methodology reached 1.6% in August, which corresponds to the EU average (Chart 2). The main contributor to the decrease of Hungary’s consumer price index was the reduction of household energy prices, while the increase of prices was also restrained by the fact that fuel prices barely increased due to last year’s high basis.
When examining the harmonised index of consumer prices in the eurozone by key product groups, it can be noticed that the main factor holding inflation back in August, year-on-year, was the decrease of telecommunication prices (-4.3%) resulting from a reduction of roaming charges, but the lower-than-average increase in the prices of transport (0.1%), clothing (0.2%) and durables (0.7%) also helped ensure a modest rate of inflation. Food (3.0%), educational services (3.6%) and alcohol and tobacco products (4.3%) saw an above-average year-on-year price increase in August 2013. The reason for this is that a decline in household demand has the greatest impact on demand for durable consumer goods, making producers and distributors of such products less able to incorporate their costs in their prices (Chart 3).
Besides weak internal demand, eurozone inflation has been kept low by a decrease in lending. Corporate loans have been on a decline since Autumn 2011 (with a year-on-year drop of 5.8% in August this year), while retail housing loans have been more or less stagnant and consumer loans have been falling at a rate of around 3%. Current eurozone growth statistics — which indicate lessening recession on an annual level and growth on a quarterly level — foreshadow a slowdown or stoppage of the decline of corporate lending in the eurozone over the coming months. However, while demand for corporate and household loans may be stirring, it will likely not yet drive prices up to any significant extent this year (Chart 4).
In August 2013, the amount of HUF loans taken out by enterprises in Hungary exceeded the amount repaid by them by HUF 145.5 billion (this was unprecedented since mid-2008), while foreign currency corporate loans decreased by HUF 62.6 billion. Markedly different from the figures of previous months, which demonstrate that the Funding for Growth Scheme of the central bank had an incentive effect on the banking sector’s willingness to lend, and that an increasing number of Hungarian SMEs are replacing foreign currency loans with forint denominated credits (Chart 5). Nevertheless, the increasingly positive lending dynamics seen in the corporate sector will have a delayed impact on inflation, and as a combined result of this and of an additional reduction of household energy prices, low inflation rate can be expected in Hungary over the next months.
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European Union (average) Euro area (average)
Chart 2: Changes in Harmonised Index of Consumer Prices (HICP) in August of 2013 in the European Union (y/y)
Sources: Eurostat, MFB
Hun
gary
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Real estate loans Corporate loans Consumer loans
Sources: ECB, MFB
Chart 4: The change in outstanding amount of consumer loans, real estate loans, and corporate loans in the eurozone (y/y)
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HUF loans Loans denominated in foreign currency Total loans
Chart 5: Change in total amount of outstanding non-financial corporate loans through loan transactions
HU
F bi
llion
Sources: NBH, MFB
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0.1% 0.2%0.7%
1.3% 1.5% 1.8% 2.0%3.0%
3.6% 4.3%
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, wat
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elec
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gas
Food
Educ
atio
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Alc
ohol
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beve
rage
s,to
bacc
o
Chart 3: Annual changes of consumer prices by the main groups of products and services (August 2013)
Tota
l
Sources: Eurostat, MFB
Periscope
Periscope October 20133
GDP growthBeside the improving global economic outlook the domestic demand can also foster the GDP growth in Hungary
• Based on the latest sentiment indicators expectations of the economic actors are improving both in the United States and in the eurozone, but in China significant accelerating economic growth has not yet been expected (Chart 1).
• In the euro area the biggest obstacle of the economic growth is the low domestic demand, however the fall in consumption of households slowed down in the second quarter and the government expenditures contributed positively to the gross domestic product at first for seven quarters (Chart 2). After decreasing for five consecutive quarters the Hungarian economy grew again (+0.1% y/y) in Q2, but among the regional peers its performance exceeded only the Czech Republic which is still not out of recession. The Hungarian GDP growth was supported mainly by the raising investments due to public projects and increasing consumption of households, while the net export showed decline owing to a significant growth in the import. On the production side the Hungarian growth was boosted by the agriculture as a consequence of this year’s good harvest and the construction sector, which moved away from its bottom. According to the sentiment indicators continuation of the annual GDP growth can be expected in the second half of the year (Charts 3-6).
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Gross fixed capital formation Household consumption expenditureGovernment consumption exp. GDP growth (RHS)
Chart 2: Contribution of the gross fixed capital formation and household consumption to GDP growth
Sources: Eurostat, MFB
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Hungary Czech Republic Romania Slovakia Poland
Chart 3: GDP growth* in Central and Eastern Europe (y/y)
Sources: Eurostat, MFB* seasonally adjusted data
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Eurozone China USA Germany
Sources: Reuters, MFB
Chart 1: Business climate* in certain area of the global economy(December 2012= 100%)
*Eurozone: ESI Index, China: PMI Index, USA: ISM Index, Germany: IFO Index
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Final consumption (LHS) Gross capital formation (LHS)Net export (LHS) GDP growth (RHS)
Chart 4: Contribution to the Hungarian GDP (y/y)
Sources: HCSO, MFB
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Agriculture Manufacturing Construction Services GDP (RHS)
Chart 5: Contribution to GDP growth (y/y)
Sources: HCSO, MFB-10%
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ESI* Hungary (LHS) GDP growth (y/y, RHS)
Sources: HCSO, European Commission, MFB
* Economic Sentiment Index
ESI: adv. 3 months
Chart 6: GDP growth and economic sentiment in Hungary
Periscope
Periscope October 20134
Foreign trade, current accountThe record high Hungarian net financial capacity was partly a consequence of the rising EU transfers• Despite the slow pace of growth, the increase in the world trade still lagged behind its long term average, thus it can be less
an engine of the global economic growth (Chart 1). The gradual strengthening external demand can be perceived both in the eurozone and in Hungary. In the previous one year export orders showed a more and more encouraging picture in both area (Chart 2). In July 2013 Hungarian export rose by 7.4%, while import increased by 6.4% in yearly comparison. In January-July export was higher by 2.6 and import by 3.7% compared to the same period of 2012. The surplus of the trade balance was HUF 1178.6 billion (EUR 4.0 billion) in the first seven months of the year, almost equal to the value of the same period in the previous year (Charts 3-4).
• The external balance of the Hungarian economy has significantly improved since the last quarter of 2008. However, Hungary’s net financing capacity vis-à-vis the rest of the world as a percentage of GDP did not increase further in April-June after reaching 5.4% in Q1 2013. It was a consequence of rising domestic demand (which was confirmed by the investment and import data) (Chart 5). The EU transfers have played an increasing role in the capital account and on the whole, in the high financial capacity (Chart 6).
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€m
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Unadjusted data
Seasonally adjusted data
Chart 6: EU transfers
Sources: NBH, MFB
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Current accountCapital accountNet financing capacity**(RHS)
Chart 5: Current account, capital accountand financing capacity of Hungary
Sources: NBH, MFB
*seasonally adjusted data** as % of GDP
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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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EU
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Chart 2: Export orders in the European Union,Germany and Hungary
Source: European Commission
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Trade balance (LHS) Export volume (y/y) Import volume (y/y)
Chart 3: External trade volume in Hungary
Sources: HCSO, MFB
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Chart 4: Trade balance in Hungary (January - July)
Sources: HCSO, MFB
Periscope
Periscope October 20135
IndustryThe recovery of external demand can support the domestic manufacturing sector in H2 2013• The industrial production increased by 2.5% in July 2013 in annual comparison. The performance of manufacturing sector
jumped after the weakness of the previous months (6.1% y/y), the production grew in ten subsectors out of the thirteen, domestic orders rose by 17.8% while export orders exceed the value of the previous year’s data by 4.2% (Charts 1-2).
• Similarly to Hungary, the manufacturing sector’s performance started to pick up in the other countries of the region (excepted the Czech Republic) in the middle of the year, which is clearly a consequence of the slowly improving European demand after the prolonged recession. In the next period the fostering external environment is expected to be a significant driving force of the sector’s production (Charts 3-4).
• The production of construction sector rose by 1.9% (y/y) in July, and the volume of new orders increased by 34.9% in annual comparison. Considering the long term outlook it is still unfavourable, that in spite of decreasing mortgage interest rates the real estate market is still stagnating, and the number of new residential building permits in the second quarter was more than 20% lower than one year earlier (Charts 5-6).
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Chart 2: Manufacturing production* in the Visegrád countries
Sources: Eurostat, MFB
* 3-month rolling average
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ESI - Manufacturing (LHS) Manufacturing production** (y/y, RHS)
** 3-month rolling average Sources: HCSO, European Commission, MFB
Chart 4: Manufacturing sentiment index*and manufacturing production
* ESI (European Sentiment Index)
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IFO index: business expectations (LHS)
Manufacturing production (y/y, RHS)
Chart 3: German business expectations (IFO index) and Hungarian manufacturing production
Sources: HCSO, CESifo, MFB
IFO index: adv. 3 months
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010
04.2
010
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010
10.2
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01.2
011
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10.2
011
01.2
012
04.2
012
07.2
012
10.2
012
01.2
013
Domestic orders (LHS) Export orders (LHS)Manufacturing production (RHS)
Sources: HCSO, MFB
Chart 1: Manufacturing production and new orders (y/y)
0
2 000
4 000
6 000
8 000
0
2 000
4 000
6 000
8 000
Q1
2000
Q3
2000
Q1
2001
Q3
2001
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2002
Q3
2002
Q1
2003
Q3
2003
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2004
Q3
2004
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2005
Q1
2006
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2006
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2007
Q3
2007
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2008
Q3
2008
Q1
2009
Q3
2009
Q1
2010
Q3
2010
Q1
2011
Q3
2011
Q1
2012
Q4
2012
piec
es
piec
es
Number of new residential buildingsNumber of new non-residential buildings
Chart 6: Number of construction permits issuedfor residential and non-residential buildings*
Sources: HCSO, MFB
* 4-quarter rolling average
-20%
-15%
-10%
-5%
0%
5%
10%
15%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
01.2
009
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01.2
013
04.2
013
07.2
013
Stock of orders at the end of the month* (LHS)New orders* (LHS)Construction output* (RHS)
Chart 5: Construction production and orders (y/y)
Sources: HCSO, MFB* 3-month rolling average
Periscope
Periscope October 20136
InvestmentAccelerating investments in the Hungarian economy
• After more than four-year fall in the second quarter of 2013 the gross fixed capital formation rose by 4.6% (y/y) in Hunga-ry, while in other Central Eastern European countries the investments declined by rates between 3.8 and 6.4% (Chart 1).
• Due to the slowly decreasing investments between 2009 and 2013 the investment rate is still the lowest in Hungary among the regional peers: in Q2 2013 the proportion of gross fixed capital formation to GDP reached 16.9%. The capacity utilization increased from 75.5% in July to 78.0% in September in the industry which gives additional pressure for investments. However, the new orders of consumer goods, investment products and intermediate goods have not gathered momentum (Charts 2-4).
• The volume of investments grew by 4.6% in Q2 2013 (y/y), the private and public investments rose by 2.6% and 27.9%, respectively. The investments in the construction sector grew in the second consecutive quarter, which has not been seen for five years, while in real estate activities there has been decline since the middle of 2009. There was an investment decrease of 0.5% in Q2 2013 after a fall of 13.2% in Q1 2013 in the manufacturing which has a proportion of more than one quarter in total investments (Charts 5-6).
-40%
-30%
-20%
-10%
0%
10%
20%
30%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Q1
2008
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Hungary Czech Republic Poland Slovakia Romania
Chart 1: Gross fixed capital formation inCentral and Eastern European countries (y/y)
Sources: Eurostat, MFB * not seasonally adjusted data15%
20%
25%
30%
35%
15%
20%
25%
30%
35%
Q2
2004
Q4
2004
Q2
2005
Q4
2005
Q2
2006
Q4
2006
Q2
2007
Q4
2007
Q2
2008
Q4
2008
Q2
2009
Q4
2009
Q2
2010
Q4
2010
Q2
2011
Q4
2011
Q2
2012
Q4
2012
Q2
2013
Hungary Czech Republic Poland Slovakia Romania
Chart 2: The gross fixed capital formation to GDP ratio*in Central Eastern Europe
Sources: Eurostat, MFB * 4-quarter rolling average
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
Q1
2008
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Hungary Czech Republic Poland Romania Slovakia
Chart 3: Capacity utilization in manufacturing
Sources: Eurostat, MFB
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Q1
2000
Q3
2000
Q1
2001
Q3
2001
Q1
2002
Q3
2002
Q1
2003
Q3
2003
Q1
2004
Q3
2004
Q1
2005
Q3
2005
Q1
2006
Q3
2006
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2007
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2007
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2008
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2008
Q1
2009
Q3
2009
Q1
2010
Q3
2010
Q1
2011
Q3
2011
Q1
2012
Q3
2012
Q1
2013
Business sector* (y/y) Budgetary institutions (y/y)
Chart 5: Investment activity in the public andbusiness sector in Hungary
* corporations with more than 49 employees
Sources: HCSO, MFB
-12,5%-10,0%-7,5%-5,0%-2,5%0,0%2,5%5,0%7,5%10,0%12,5%
-60%-50%-40%-30%-20%-10%
0%10%20%30%40%
Q4
1999
Q2
2000
Q4
2000
Q2
2001
Q4
2001
Q2
2002
Q4
2002
Q2
2003
Q4
2003
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2004
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2004
Q2
2005
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2005
Q2
2006
Q4
2006
Q2
2007
Q4
2007
Q2
2008
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2008
Q2
2009
Q4
2009
Q2
2010
Q4
2010
Q2
2011
Q4
2011
Q2
2012
Q4
2012
Q2
2013
Consumer goods* (LHS)Intermediate goods* (LHS)Investment goods* (LHS)Gross fixed capital formation* (RHS)
Chart 4: New orders and gross fixed capital formation (y/y)
Sources: European Commission, HCSO, MFB
* 4-quarter rolling average
prop
orti
on o
f com
pani
es e
xpec
ting
rise
min
us
prop
orti
on o
f com
pani
es e
xpec
ting
dro
p
2.4%
5.8%
4.6%
-29.4%
-24.8%-8.2%
-5.3%
-3.4%
-0.5%13.2%
18.1%
21.4%
-40% -30% -20% -10% 0% 10% 20% 30%
Of which: Machines, vehiclesOf which: Construction
ICT sectorElectricity, gaz, steamReal estate activities
EducationWholesale and retail trade
ManufacturingTransportation, storage
AgricultureConstruction sector
Q2 2013 Q1 2013
Total
Chart 6: Investment volume (y/y) in the main sectors
Sources: HCSO, MFB
Periscope
Periscope October 20137
ConsumptionImproving expectations, low inflation and decreasing unemployment boost the consumption• The consumer confidence index grew to a level not seen for two and a half years in Hungary (Chart 1), the expectations of
domestic households approached again the Central Eastern European average, from where Hungary fell behind in the first part of 2011 (Chart 2). Strengthening the consumer optimistism is more and more noticeable in the retail statistics, after a growth of 1.2% in July the retail turnover increased by 1.5% (y/y) in August according to the preliminary data (Chart 3). The purchasing power of the households is fostered by the recovery of the labour market and the rising real wages due to the easing inflation (Chart 4).
• In the second quarter of 2013 households’ financial assets grew by HUF 305.1 billion, while their liabilities decreased by HUF 78 billion. As a consequence of lowering interest rates caused by the monetary easing the households diminished their amount of cash and bank deposits, and increased their investments in securities by HUF 384.3 billion. The cutback of the outstanding amount of loans started at the beginning of 2009 has further continued: in the second quarter of 2013 the households’ repayment exceeded by HUF 100.1 billion the amount of the new lending (Charts 5-6).
-80
-70
-60
-50
-40
-30
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0
10
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10
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09.2
013
Consumer confidence Economic prospect Business sentiment
Chart 1: Sentiment indicators and economic prospects in Hungary
Sources: GKI (GKI Economic Research Co.), MFB-70
-60
-50
-40
-30
-20
-10
0
10
-70
-60
-50
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10
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09.2
013
Poland Czech Republic Slovakia Hungary Romania
Chart 2: Consumer confidence* in Central and Eastern Europe
Sources: European Commission, MFB
* seasonally adjusted data
-12%
-8%
-4%
0%
4%
8%
12%
-6%
-4%
-2%
0%
2%
4%
6%
01.2
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10.2
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01.2
013
04.2
013
07.2
013
Month/month (LHS) Year/Year (RHS)
Sources: HCSO, MFB
Chart 3: Retail trade volume in Hungary
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
03.2
008
06.2
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09.2
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12.2
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03.2
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06.2
013
Retail trade volume Net real wages
Chart 4: Retail trade and net wages in Hungary (y/y)
Sources: HCSO, MFB
-1 000
-800
-600
-400
-200
0
200
400
600
-1 000
-800
-600
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0
200
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Q1
2007
Q2
2007
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2008
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2008
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2010
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2012
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2012
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2012
Q1
2013
Q2
2013
HU
F bi
llion
HU
F bi
llion
Housing loans in HUF Housing loans in foreign currencyOther HUF loans Other foreign currency loansTotal
Chart 6: Households' loans by transactions
Sources: NBH, MFB
-400
-200
0
200
400
600
800
1 000
Q1
2008
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
HU
F bi
llion
Currency and deposits Securities
Sources: NBH, MFB
Chart 5: Households' financial assets by transactions
Periscope
Periscope October 20138
Labour marketThe number of new not state-supported jobs steadily increases in Hungary • In June-August the unemployment rate fell to 9.9%, to a level lower by 0.5 percentage points than a year before. The number
of employed increased by 67 thousand, while that of unemployed decreased by 16 thousand (Chart 1). However, the number of employees still stagnated (in the first seven months of the year it lagged behind the same period of 2012 by 0.1%).
• In the manufacturing sector the number of employees rose at a moderate pace (+0.1%), and according to the European Commission survey significant change cannot be expected in the coming months. In the business sector, on the whole, the number of employees declined by 0.3%, while it rose by 1.7% in the budgetary institutions. This latter was still due to higher level of the fostered worker compared to the previous years (Charts 2-4).
• In August, among the 37.5 thousand new registered jobs 13.6 thousand vacancies were not state-supported ones (36.3%), and it is a favourable sign, that it has been rising continuously since May (y/y) (Chart 5).
• In July 2013 the gross wages rose by 2.0% (y/y), while net earnings increased by 3.7%. The real wages were higher by 1.9% than a year earlier. (Chart 6).
-5%
0%
5%
10%
15%
-5%
0%
5%
10%
15%
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07.2
013
Net wages* Net real wages* Gross wages**
Sources: HCSO, MFB
* excluding family tax benefits** gross earnings without premiums and one month bonuses
Chart 6: Wages in Hungary(y/y, 3-month rolling average)
-150%
-100%
-50%
0%
50%
100%
150%
200%
0
25
50
75
100
125
150
175
01.2
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thou
sand
peo
ple
Number of fostered workers (LHS)Changes in number of fostered workers (y/y, RHS)
Sources: HCSO, MFB
Chart 4: Number of fostered workers in Hungary
-60%
-40%
-20%
0%
20%
40%
60%
0
30
60
90
120
150
180
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thou
sand
Registered new vacancies (LHS) Not supported new vacancies (y/y, RHS)
Chart 5: Total registered new vacanciesand not supported vacancies
Sources: National Employment Service, MFB
90% 95% 100% 105% 110% 115%
TotalBusiness sector
Budgetary institutionsAccommodation, food service activities
EducationConstruction
ICTFinancial intermediation
AgricultureWholesale and retail trade
Transportation, storageManufacturing
Health careAdministrative and support service activities
Public administrationReal estate activitiesSocial work activities
Chart 2: Changes in number of employed persons(same period of the previous year = 100%)
Sources: HCSO, MFB
-100
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-40
-20
0
20
40
-50
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10
20
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013
thou
sand
per
sons
Employment in manufacturing (y/y, RHS) Employment expectations (LHS)
Chart 3: Employment expectations and number of employeesin the manufacturing sector
Sources: European Commission, HCSO, MFB
Employment expectations:
5 months adv.
7%
8%
9%
10%
11%
12%
13%
-150
-100
-50
0
50
100
150
01.2
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thou
sand
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le
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 1: Changes in economically active population*and the unemployment rate
Periscope
Periscope October 20139
InflationIn contrast with the expectations Hungarian consumer price index fell significantly in August• In the first part of September the price of Brent crude oil reached a level (USD 117 per barrel) not seen since the beginning
of the year as a result of the escalating conflict in Syria and then started slowly decreasing. The monthly average world market price (USD 111.9 per barrel) was 0.6% higher than in the previous month (Chart 1). The increase in consumer prices decelerated both in the US (from 1.6 to 1.3%) and the eurozone (from 2.0 to 1.5%) from July to August (Chart 2).
• By causing big surprise, the Hungarian 12-month inflation rate decreased to 1.3% (Chart 3) in August. This was caused not only by utility price cuts, since the effect of these measures were partly outweighed by the significant price rise of tobacco products (Chart 4). Further decline in the inflation rate was attributable partly to the modest increase in fuel prices due to the last year’s high basis, and also the weak domestic demand, because the retailers cannot pass through the effect of fo-rint depreciation into their prices in case of durable consumer goods and clothing products (Chart 5). The underlying inflation indicators suggest a permanent low level of the consumer price index, and as a consequence of the further reduction in household energy prices the inflation rate in Hungary can reach a new historical low level by the end of the year (Chart 6).
0%
1%
2%
3%
4%
5%
6%
0%
1%
2%
3%
4%
5%
6%
01.2
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01.2
013
Demand sensitive inflation*Core inflation excluding indirect taxesSticky price inflation
Chart 6: Underlying inflation indicators (y/y)
Sources: NBH, MFB
*excluding changes in processed food prices from core inflation
adjusted for tax changes
-0.3%
0.0%
-0.4%
-2.1%
0.3%
-1.0%
-0.3%
0.9%
1.3%
-8.7%
-2.2%
-0.5%
0.4%
2.7%
2.9%
9.1%
-10% -5% 0% 5% 10%
Total
Fuel and power
Consumer durable goods
Clothing and footwear
Other goods, including motor fuels
Food
Services
Alcoholic beverages, tobacco
Year/year
Month/month
Chart 6: Monthly changes of consumer prices by the main groups of products and services
0.4%Chart 5: Monthly changes of consumer prices
by the main groups of products and services (July 2013)
Sources: HCSO,
MFB
0%
2%
4%
6%
8%
10%
0%
2%
4%
6%
8%
10%
01.2
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04.2
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07.2
013
Constant tax rate index Consumer price index Core inflation
Chart 3: Impact of changes in tax rates on consumer prices (y/y)
Sources: NBH, MFB
-2,5%
0,0%
2,5%
5,0%
7,5%
10,0%
-2,5%
0,0%
2,5%
5,0%
7,5%
10,0%
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01.2
013
04.2
013
07.2
013
USA Eurozone China
Chart 2: Consumer price index (y/y) in the USA, the eurozone, and China
Sources: Reuters, MFB
95
100
105
110
115
120
375
400
425
450
475
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$/ba
rrel
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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perc
enta
ge p
oint
perc
enta
ge p
oint
Fuel and power Alcoholic beverages, tobacco Net effect
Chart 4: Contribution to the consumer price index
Sources: HCSO, MFB
Periscope
Periscope October 201310
Banking sector’s credit supplyIn August the effects of monetary policy measures could be noticed on lending activity• All banks are designed to expand loan supply in the second half of 2013 according to the most recent lending survey of the
National Bank of Hungary (NBH) published in August (Chart 1). The majority of financial institutions plans easing in lending conditions regarding small and micro enterprises and large and medium companies as well, which has not been seen since the beginning of the survey (Chart 2).
• The lending willingness of banking sector has risen as a result of the Funding for Growth Scheme launched by NBH in spring: the total amount of HUF denominated corporate loans increased by HUF 145.5 billion in August which is a five-year record, while the total amount of foreign currency denominated loans dropped by HUF 62.6 billion due to net loan transactions (Chart 3). However, the lending activity of the banks has been still moderate in the CEE countries (Chart 4).
• In August the average interest rate on loans with maturity between 1 and 5 years (6.85%) and over 5 years (6.39%) reached new historical bottom in Hungary. The Bulgarian and Romanian corporations get more expansive credits than their Hungarian peers, while in the Czech Republic, Slovakia and Poland the interest rates on loans are lower than in Hungary (Charts 5-6).
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Hungary
Czech Republic
Poland
Slovakia
Bulgaria
Romania
Chart 6: 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 5: 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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Czech Republic
Hungary
Poland
Romania
Slovakia
Slovenia
Chart 4: Change in total amount ofoutstanding corporate loans (y/y)*
Sources: ECB, MFB
* change in total value converted to euro
-150-125-100-75-50-250255075100125150
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HU
F bi
llion
HU
F bi
llion
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
-20%
0%
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100%
Q1
2009
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Large and medium corporations Small and micro enterprises
Chart 1: Estimation of change in the credit supply in the next 6 months according to the Hungarian credit institutions*
* net change indicator, positive: increaseSources: NBH lending surveys, MFB
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2012
Q1
2013
Q2
2013
Large and medium corporations Small and micro enterprises
Chart 2: Planned changes in credit standards* in thenext 6 months by the size of the borrower
* net change indicator, positive: tightening
Sources: NBH lending surveys, MFB
Periscope
Periscope October 201311
Corporate demand for external financingRising corporate demand for financing is expected by the banks for the next months• The corporate sector has had net saving position since the beginning of 2009. The non-financial companies’ financing capacity
reached 3.8% of GDP in Q3 2013 and 3.4% in the last four quarters respectively (Chart 1).• The financial institutions await accelerating loan demand regarding both the small and micro enterprises and also the
large and medium corporations according to the most recent lending survey of the NBH published in August. Each of the commercial banks expects that the popularity of the HUF loans will grow in the second half of the year, and the proportion of financial institutions awaiting increasing demand for FX loans rose to some degree, too. The bank sector’s expectations regarding the investment mood of the corporate sector hit new record since the majority of the financial institutions expects rising demand for long term loans in the second half of 2013 (Charts 2-4).
• The improving expectations of the financial institutions may be pushed by the fact that the balance sheet adjustment of the bank sector seems to have slowed down according to the most recent statistics. The LTD rate grew between June and July (118.8%) as well as the proportion of long term loans regarding corporate loans (14.2%) (Charts 5-6).
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Non-financial companies (LHS) General government (LHS)Households (LHS) Rest of the world (LHS)Financing capacity (RHS)
Chart 1: The financing capacity of the main sectors (in % of GDP)
Sources: NBH, MFB
* balance of last 4 quarters/GDP of last 4 quarters
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2013
Large and medium corporationsSmall and micro enterprises
* net change indicator, positive: increase
Sources: NBH lending surveys, MFB
Chart 2: Demand for corporate loans in the next 6 monthsaccording to the Hungarian credit institutions' view*
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Corporate sector
Household sector
Total
Chart 5: Loan-to-deposit ratio (LTD ratio) of credit institutions*(December 2003 - July 2013)
Sources: NBH, MFB
* without MFB, EXIM, KELER 14%
15%
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19%
20%
21%
0
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HU
F bi
llion
Indeterminate durationOver 5 years
Years 1-5
Months 3-12
Days 31-90
Days 0-30
Past due
Proportion of credits over 5 years (RHS)
Chart 6: Maturity structure of corporate loans*
* loans offered by credit institutions (without MFB, EXIM, KELER)Sources: NBH, MFB
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Q2
2013
Short-term loans Long-term loans
Chart 6: Demand for corporate loans in the next 6 monthsby duration according to the credit institutions' view
Chart 4: Demand for corporate loans in the next 6 monthsby duration according to the credit institutions' view*
* net change indicator, positive: increase Sources: NBH lending surveys, MFB-80%
-60%
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0%
20%
40%
60%
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100%
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2012
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2012
Q1
2013
Q2
2013
HUF loans FX loans
* net change indicator, positive: increase Sources: NBH lending surveys, MFB
Chart 3: Demand for corporate loans in the next 6 monthsby currency according to the credit institutions' view*
Periscope
Periscope October 201312
Exchange ratesThe monetary easing influences the price of Hungarian assets to a high degree• In spite of the most recent monetary easing the best performance in the region was achieved by the Hungarian forint in
September. The month end value of the forint was 298.2 HUF/EUR after an appreciation of 0.9%, while the Polish zloty and the Czech koruna strengthened by 0.8 and 0.02%, respectively, and the Romanian leu weakened by 0.7% (Chart 1). During the same period the Hungarian currency appreciated by 2.9 and 0.2% against the US dollar and the Swiss franc, respectively (Chart 2).
• The Hungarian forint lost 4.7% of its value against the euro in the last 12 months, which period was characterised by increased global risk appetite and huge liquidity (Chart 3). One reason for that depreciation was the ratings of Hungarian sovereign debt on the one hand, and the monetary easing cycle of NBH started in August 2012 on the other hand, which causes that the global investors can achieve decreasing spread on the Hungarian assets and the market actors expect further base interest rate cut in the upcoming months (Charts 4-5).
• The loosening monetary conditions give stimulus to the lending activity and the real economy outlook. However, the fragile economic growth cannot support the appreciation of the forint for a while (Chart 6).
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inve
rted
sca
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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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HUF/EUR (LHS) HUF/USD (RHS) HUF/CHF (RHS)
Chart 2: The exchange rate of the forint against theSwiss franc, the US dollar and the euro
Sources: ECB, MFBweakening forint
96%
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102%
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CZK/EUR HUF/EUR PLN/EUR RON/EUR
Sources: ECB, MFB
31.12.2012=100%
Chart 1: The exchange rates of Central and Eastern European currencies against the euro in 2013
strengthening against the euro
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pont
VIX index (LHS)HUF/EUR (RHS)
Chart 3: 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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basi
s po
ints
HUF/EUR (LHS)3-month bill yield spread between Hungarian and German treasury bills (RHS)12-month bill yield spread between Hungarian and German treasury bills (RHS)
Chart 4: The HUF/EUR exchange rate,3 and 12-month bill yield spread
Sources: Government Debt Management Agency, Reuters, MFB
3,00%3,50%4,00%4,50%5,00%5,50%6,00%6,50%7,00%7,50%
240250260270280290300310320330
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HUF/EUR (LHS)Central Bank's base rate (RHS)Interest rate expectations on 30th September 2013 (RHS)Interest rate expectations on 30th August 2013 (RHS)Interest rate expectations on 31th July 2013 (RHS)
Chart 5: The HUF/EUR exchange rate, the Central Bank's base rate and market based expectations about the base rate in the future*
* based on BUBOR fixings and 1x4, 3x6, 6x9, 9x12 forward rate agreements(FRAs)
Sources: ECB, NBH, MFB
Periscope
Periscope October 201313
General government and its financingTight budget, sinking government bond yields• Between January and August the deficit of the Hungarian central budget reached HUF 1320.7 billion (141.1% of the annual
target, mainly as a consequence of increased expenditures), which was much higher than the deficit of the same period of the previous year (HUF 648.6 billion) (Table 1, Chart 1).
• The draft budget submitted to the Parliament on 30 September expects the fiscal deficit to be HUF 901.4 billion in 2014 (2.9% of GDP), which is lower by HUF 142.1 billion compared to this year’s target. The revenues will increase by HUF 439.2 and the expenditures will rise by 297.1 billion according to the plan. The households’ income will grow due to the expanded family tax allowance of about HUF 190 billion, the budget reduces the corporate taxes by nearly HUF 100 billion, and the debt ser-vice is expected to decrease. The increased revenue target is primarily based on the accelerating use of EU funds, while the expenditures will rise mainly due to some development projects (sport facilities, special investments). However, there are growing risks as the reserves were reduced from HUF 511.4 billion this year to HUF 296.2 billion next year (Table 2).
• In September the bond yields fell mainly at the long end of the yield curve (5 and 10-year bonds: - 71 and -75 bps) (Chart 2).
Table 1: The revenues of the central government and the social security funds by main groups
HUF billion 2012 2013
total income (esti-
mation)
January-
August
% of yearly reve-nues
yearly revenue target
January-
August
% of yearly
revenuetarget
CENTRAL GOVERNMENT 9403.7 5830.6 62.0% 10232.4 6163.8 60.2%
Taxes imposedon corporations 1157.2 549.4 47.5% 1451.3 536.5 37.0%
Corporate income tax 342.3 133.0 38.9% 320.8 125.5 39.1%
Taxes imposed on SMEs 146.5 72.2 49.3% 312.6 78.2 25.0%
Special taxes on banks and branches 250.6 72.0 28.7% 149.0 77.1 51.8%
Taxes imposedon consumption 3702.7 2499.9 67.5% 4286.9 2532.6 59.1%
Value added tax 2747.4 1891.1 68.8% 2953.2 1804.9 61.1%
Excise tax 929.4 599.7 64.5% 947.1 574.4 60.7%
Taxes imposedon households 1609.4 1057.2 65.7% 1657.8 1097.9 66.2%
Personal income tax 1498.4 990.1 66.1% 1501.6 1004.6 66.9%
Pension Fund 2765.5 1849.6 66.9% 2847.3 2040.3 71.7%
Health Care Fund 1744.6 1166.7 66.9% 1804.3 1242.6 68.9%
Sources: Ministry for National Economy, MFB
Table 2: The balance of central budgetaccording to the draft budgetary plans for 2014
HUF billionmodified target for
2013
draft plans for 2014
draft plans for 2014 as
proportion of modified traget
for 2013
Taxes imposed on corporations 1 451.3 1 351.7 93.1%
Taxes imposed on consumption 4 286.9 4 302.7 100.4%
Taxes imposed on households 1 657.8 1 700.1 102.6%
Central budgetary institutions and general government subsystems 2 489.2 2 901.8 116.6%
Other revenues 347.2 415.3 119.6%
TOTAL AMOUNT OF REVENUES 10 232.4 10 671.6 104.3%
Family benefits, social subsidies 829.6 714.5 86.1%
Central budgetary institutions and general government subsystems 5 583.6 6 410.4 114.8%
Support of social secutity funds 1 066.5 917.4 86.0%
Support of local governments 673.3 707.6 105.1%
Budgetary reserves 511.4 296.2 57.9%
Debt service 1 234.4 1 165.0 94.4%
Other Expenditures 1 377.0 1 361.8 98.9%
TOTAL AMOUNT OF EXPENDITURES 11 275.8 11 572.9 102.6%
BALANCE OF CENTRAL BUDGET -1 043.5 -901.4 86.4%
Sources: Ministry for National Economy, MFB
3%
4%
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6%
7%
8%
9%
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11%
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3-month 6-month 12-month 5-year 10-year
Chart 2: Reference yields on Hungarian government securities
Sources: Government Debt Management Agency, MFB
Hungarian sovereign debt wasdowngraded to junk status
-582,8 -599,9 -567,6 -1 116,6 -706,7 -847,4
-824,7 -839,7 -771,4-752,4
-865,6-843,8
-1 541,0 -1 497,8 -1 713,4 -1 291,9-1 213,3 -1 210,4
-2 396,4 -2 619,6 -2 752,7 -3 029,9 -3 140,2-3 979,1
-496,8 -432,3 -426,6-417,5 -553,4 -513,8
696.5 982.0 1 140.2 1 298.7 1 506.0 1 773.91 421.8 1 351.5 1 247.0 961.9 1 057.2 1 097.9
2 059.9 1 986.4 2 084.7 2 164.02 499.9 2 532.6
582.4 527.7 396.9 635.1549.4
536.5
-772.0 -758.0 -1 094.0 -1 384.3 -648.6 -1 230.7
-8 000-7 000-6 000-5 000-4 000-3 000-2 000-1 000
01 0002 0003 0004 0005 0006 0007 000
2008 2009 2010 2011 2012 2013
Payment of economic organizationsTaxes in consumption
Payment of households
Central budgetary institutions
Other revenues
Family benefits, social subsidiesPayments of central budgetary institutionsTransfers to general government subsystemsDebt service
Other expenditures
Balance of central budget
value of balanceSources: NGM,
HCSO, MFB
Chart 1: Revenues and expenditures of central budgetin January - August period (billion HUF)