Positive signs in macro trends - Economy Ministry's report

Tax-cutting measures of the government amounted to HUF 600 billion without taking into account the impact of favourable macro-economic trends, according to the report. The key objective of the budget reform program is to consolidate the budget of Hungary, boost employment and increase the competitiveness of the Hungarian economy. The government will cut the budget deficit to 2.5% in 2012, 2.2% by 2013 and 1.9% by 2014, the report says.

In Hungary, administrative burdens amount to HUF 3 trillion or 10.5% of GDP, while the EU average is HUF 1 trillion or 3.8% of GDP. The first program of the government aimed at cutting red tape reduces the burden of Hungarian enterprises by HUF 500 billion.

The growth target set by the government may need a revision in the light of the global slowdown, the report says. The ministry blames the weaker-than-expected Q2 GDP figure on the base effect and on the weaker than expected performance of the export-oriented industrial sector. 

Retail sales hit the bottom in November 2009 with a fall of 7.8%, turning positive sharply by 2.4% in July 2010. After that, retail trade stabilized and oscillated between -1.5% and 0.9%. Analyzing the consumption trends of households, the report concludes that signs of stabilization began to emerge in the last three quarters.

The ministry sees positive trends in the labour market, too. The activity rate of the population aged 15-74 has reached 56%, the highest since 2001. The number of jobs this year has risen by almost 100 000 to over 3.8 million, some of which are, however, seasonal jobs.

In terms of foreign trade, the crisis has had a negative impact on the dynamics of both exports and imports, but as the volume of exports declined less than that of imports, foreign trade balance has been improving. 

Finally, money markets have given a vote of confidence to the Hungarian economic policy, the ministry stressed. This is reflected by the solid EUR/ HUF exchange rate, even during the money market crush this summer.

The value of Hungarian sovereign bonds held by foreigners increased from HUF 2.5 trillion HUF in 2006 to HUF 3.1-3.2 trillion in the end of 2008. The average duration of the portfolio was 3-3.5 years in this period. In 2008, as the crisis struck, the value of the portfolio fell below HUF 2.5 trillion again, the average duration decreased somewhat and after that it began to rise sharply. Currently, the value of tbonds held by overseas investors is at around HUF 3.5 trillion.