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Analysts see continued real wage decline

July wage and employment data published early Thursday augur more layoffs and a continuing decline in real wages, analysts told MTI.

Twelve-month gross wage growth in Hungary was 1.4% in July, picking up from 1.1% in June, the Central Statistics Office (KSH) said on Thursday. Net wages climbed 3.9% in July from the same month a year earlier, well over the 0.9% increase in June. Calculating with 5.1% twelve-month CPI in July, real wages fell 3.5%, inching up 0.87% in the business sector and dropping 5.8% in the public sector.

The number of employees fell 4.4% to 2,657,900 in twelve months to July, dropping 8.2% in the business sector, but rising 5.6% in the public sector because of community work programs for people on welfare or unemployment benefit.

Raiffeisen Bank's Zoltán Török said the growth dynamic of gross and net wages diverged in July: net wages rose at a faster rate than gross wages because of changes to the personal income tax rules. The difference was more or less countered by consumer price inflation, which jumped from under 4% to over 5% in July after Hungary's main VAT rate rose from 20% to 25%, causing real wages to fall further. Inflation will rise to well over 6% by year end, causing the decline in real wages to speed up to 3-4%, he added. The result will be an even steeper fall in domestic demand, which does not bode well for growth, he said.

Layoffs are expected to continue in the coming months, Török said. The number of employees in the business sector could fall by another 10,000.

Orsolya Nyeste of Erste Bank said the slow pace of gross wages was no surprise in the recessionary environment. She, too, noted that net wages grew at a faster clip in July because of tax changes.

Nyeste said gross wage growth would remain steady at 1%-2% in the coming months. The unemployment rate could rise somewhat too, but not at a faster rate, she added.

CIB Bank senior analyst György Barta said gross wage growth in the private sector slowed, which is a bad sign for household consumption. Companies will probably continue to hold back on wages in the coming months, and layoffs are likely to continue, he added.

Although inflation is seen picking up, wage data will allow the National Bank of Hungary to cut rates further, Barta said. (MTI-ECONEWS)