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Wednesday, September 24, 2008

Hungary Retail Sales Fall Again In July

Hungarian retail sales were down by 0.1% month on month in July, following a 0.3% drop in June, according to calendar and seasonal adjusted data from the Hungarian Central Statistics Office (KSH). Using calendar effect adjusted data, the KSH found there was a fall of 1.8% yr/yr in July, versus a 1.9% decline in June and a 4.0% drop in July 2007. Retail sales in 2007 declined by 2.9% in annual terms, which compares with an increase of 4.4% in 2006 and 5.6% in 2005. For January-July this year, the KSH reported a 2.2% yr/yr decline, unchanged from the first half of 2007.

Combined retail sales including cars, car parts and fuel (which do not form part of the harmonised European statistical retail sales data) totalled HUF 213 billion in July, down 3.9% yr/yr following a decrease of 3.0% in June.

Retail sale of cars and car parts plunged 8.2% yr/yr in July, following a decline of 6.2% in June. For the first seven months of the year the KSH reported a decrease of 2.0%, against a fall of 0.8% in the first half of 2007.

Calendar-adjusted food sales fell 1.4% yr/yr in July, against a 1.5% decline in June. In monthly terms, food sales shrank by 0.1% in July, against a drop of 0.2% in June. In the first seven months they registered a yr/yr fall of 1.5%.

Non-food sales eased back by 2.0% yr/yr versus a 2.3% drop in June. There was a m/m fall of 0.1% in July, versus -0.3% one in June. From the beginning of the year, the KSH reported a 2.6% decline.

As can be seen from the monthly seasonally adjusted sales index, Hungarian retail sales peaked in early summer 2006, from which time they have been steadily falling. It is quite possible that they will never reach their historic peak again.

Thursday, September 18, 2008

Hungarian Wages Up Construction Down In July

Wages in Hungary continued to rise more quickly than inflation in July, though the difference was not as great as in June. Gross wages rose by 7.8% year on year in July, down from the 9.7% rate registered in July, according to the latest data from the Central Statistics Office (KSH). On the other hand, bonus-adjusted gross wage growth in the private sector - which is the Hungarian central banks favourite wage growth indicator - accelerated to 9.3% from 8.9% in June. Given that inflation was running at an annual 6.7% in July this mean that on this measure real wages were up 2.6%. Net real wages including bonuses, in contrast rose by a mere 0.2% yr/yr.

Taking January to July as a whole gross wages were up 8.1% , while net wages increased by 7.2% (year on year) . Taking the private sector alone, gross monthly wages rose by 8.3% year on year in July, down from an 8.7% rate in June, while in the public sector the rate of increase slowed much more significantly, to 7.1% from 12.7% in June. The decline in the gross monthly wage in the private sector follows the recent trend, since year on year growth has been consistently below 9.0%.

In general the central bank will probably welcome the general trend downwards, since wage increases beyond productivity obviously constitute inflationary pressures. There are however still two interesting questions to which we do not really know the answer. The first of these is that it is very hard to assess the impact of any wage "whitening" on the pubished numbers. The second is why it is that even though private sector ex-bonus wages increased by an annual 9.3% in July (over 8.9% in June) bonus payments remained so low. Companies were obviously scaling back on bonus payments in July, and looking at the weak performance in industrial output in the export sector in July might we find the explanation for this? We could also ask ourselves whether this is simply a one of "bad month", or whether, as the Western European economies slow this is actually an indication of what we may see in the future.

Inflation Slowing

Hungarian inflation slowed in August as oil and food costs, which have buoyed consumer-price growth over the past year, started to ease back. The annual rate fell to 6.5 percent from 6.7 percent in July. Month on month, consumer prices fell 0.3 percent over July.

Decreasing global energy and food prices have raised expectations that the inflation rate will now gradually fall back toward the central bank's 3 percent target. Food prices, which jumped 2.2 percent on a monthly basis last September as inflation began to quicken globally, fell by the most in three years in August. They were down 1.5 percent, dropping for a third month. A 9.9 percent increase in household natural gas prices on July 1 added 0.3 percent to the August figure and prevented inflation from slowing further. Oil prices, which have fallen over 30 percent since mid-July, also point in the direction of a furtherdrop in the inflation rate.

The strengthening of the forint, which gained 11 percent against the euro in the past six months has helped contain prices. The price of durable goods fell for a fifth month in August. Hungary's central bank has kept the two-week deposit rate at 8.5 percent for three months, double the rate in the euro region, after following a one percentage point rise to curb inflation and underpin the forint.

Employment Remains (more or less) Stagnant

One thing the Hungarian economy is NOT doing to any great extent is creating employment. The number of employees in companies employing at least 5 people and the public sector combined dropped by 0.5% year on year in July to hit 2.755 million. This followed a 0.9% annual drop in June. This process is only natural as the Hungarian population declines, but of course it does mean that the only real way the Hungarian economy can grow is by increasing productivity, and that in June something like the first 1% of productivity improvement was eaten up by diminished employment. Clearly the answer to this is to increase labour force participation rates, and this sounds fine in theory, but we are a long way from seeing it happen in practice.

The distribution of the labour force is changing, however, since the number of employees in the private sector rose by 0.3% year on year in July but decreased by 3.5% in the public sector. On the other hand, and to put all of this in some perspective, there are now over 100,000 fewer employees in the private sector than there were in June 2003.

Construction Drops Back Again In July

Construction output fell more strongly in July - down by 11.8% year on year, following an 8.1% drop in June. Taking the number of working days into account, the decline was 12.8% in July, and 9.0% in June.

Adjusted seasonally and for working days, output contracted by 2.8% month-on-month from June, following a 5.5% month on month contraction in June. July was the third consecutive month when construction industry output dropped. Output in January-July was down 10.9% over the same period of 2007.

While the index will probably settle down a bit in the autumn, given the base effects due to the strong plunge in output last autumn, we are unlikely to see any short term improvement in construction output, and given the ongoing turmoil in the sector globally the position will more than likely continue to deteriorate for some time to come. Maybe someone will one day wake up to the fact that with an ever smaller and older population in the longer term you need fewer and fewer houses. As can be seen from the chart below, the level of construction activity peaked in Hungary in 2005 (along with domestic private consumption growth), and given the population situation, and that civil engineering will be continuously constrained by government budget commitments to health and pension programmes in an ageing society, it is very unlikely that we will ever again reach that level. Remember here, we are talking about the RATE of output, and not the STOCK of buildings, bridges, motorways etc. I simply can't see why none of this can enter the mindset of those who are sitting stoically, arms folded, waiting for the "inevitable" upturn in Hungarian domestic consumption. Less retail sales, less building, less people working, this is, I think, what you should expect with a declining and ageing population. And, of course, we are about to see this phenomenon repeated in one society after another as the process spreads. Hungary is simply unfortunate enough to be among the first.

Friday, September 05, 2008

Hungary Industrial Output July 2008

Hungarian industrial production fell on an annual basis again in July as a high forint and slowing demand across Western Europe curbed exports.Production fell an annual 1.8 percent, compared with a 0.3 percent drop in June, according to data out today from the Budapest-based statistics office. Industrial output in January-July was up 4.9% over the same period of 2007. Compared to the previous month, the industrial output index, according to figures adjusted seasonally and by working days, declined by 0.2%.

The industrial export sales grew by 7.1% in the first seven months of 2008 but only by 0.3% in July when compared with the equivalent periods of the previous year. The deceleration of exports in July was especially observed among the large enterprises. In the seventh month of the year Hungary's largest export sector - the manufacture of electrical and optical equipment - (representing one third of all manufacturing exports) had an export volume decline of 7.2%, partly owing to the growing slowdown in Western Europe. On the other hand, the export volume of transport equipment − the other significant subsection, responsible for more than one fourth of manufacturing export sales − rose by 12.1%.

Hungary Q2 2008 Detailed Results

Hungary's annual economic growth accelerated for the second consecutive quarter in Q2, largely as a result of a surge in agricultural outout which was up 33.8% year on year, and contributed about 50% of the quarter on quarter growth despite being a very small segment of the economy. Gross domestic product was up by an annual 2 percent, and this was the fastest rate since the first quarter of last year. The figure compares with a preliminary estimate of 2.2 percent made on Aug. 14 and 1.7 percent growth in the first three months of 2008.

Over the previous quarter GDP was up by 0.6%, equalling the performance in Q1 over Q4 2007.

Agricultural production rose an ``extraordinary'' 33.8 percent compared with Q2 2007, largely due to a bumper wheat harvest which was up 40 percent this year (to 5.6 million metric tons) following a very poor harvest in 2007 after frost and drought damaged the crop.

Industrial production was up only up 4.2 percent year on year, due to the slowing pace of export increase. IP had risen by 6.9 percent in the first quarter. Private Household consumption also showed some signs of life and rose 1.4 percent. This was the biggest leap in private household consumption since Q3 2006.

Indeed, quarter on quarter, household consumption was up 0.5%, which was the fastest quarterly rise since Q4 2005. Since this is really quite a surprising result it will be interesting now to see what happens as we move forward. On the other hand there is evidence that the stronger forint has been having an effect on exports. Indeed the annual growth in imports (at 11.2%) just exceeded the annual growth in exports (11.1%), hence the net impact of trade on GDP growth was marginally negative. The services and real estate sectors also slowed in Q2, with finance and real estate contracting by 0.3% quarter on quarter. Given that the rate of increase in new mortgage lending has now been slowing for some months, and new building permits are way down year on year, can we start to detect the first initial effects of the extending global credit crunch in Hungary at this point?

Investments as we have seen in a previous post were down year on year by 2.2%, while construction was down year on year by 6%. Given that the external environment in the Eurozone is now deteriorating, the industrial output (as we are also seeing for July today) is losing steam on the back of the high forint, I think we are more than likely going to see a steady reduction in the annual rate of growth as we move forward again, especially since one off factors like agriculture will not be so important, and can't be guaranteed to always show up just when you want them. My feeling is a final growth rate of 1.5% for whole year 2008 is not an unrealistic expectation at this point.