Agreement between govt, central bank could be key to growth, Matolcsy says

MNB

The key to jumpstarting economic growth in Hungary could be a strategic agreement between the government and the central bank, György Matolcsy, the National Bank of Hungary's new governor, said in a piece published in the fresh issue of weekly Heti Válasz. Such an agreement would be capable of expanding lending resources available to domestic businesses, Matolcsy said. Hungary will see dynamic and sustained growth only if companies have better access to capital, credit, markets and know-how, while the country keeps up the results of fiscal consolidation, he added. He warned that without a growth turnaround, a reduction in state debt, a general government deficit under the 3% of GDP threshold, increasing employment, political stability, and thus the government's ability to act, would all be unsustainable. Matolcsy attributed the 1.7% contraction of Hungary's economy last year mainly to one-off factors, blaming half of the drop on a decline in the farm sector caused by drought. The elimination of some industrial capacities – such as those by Nokia, Elcoteq and Flextronics – accounted for 0.3-0.4 percentage point of the drop and some HUF 500 billion in European Union-supported investments that failed to materialise shaved another 0.2-0.3 percentage point off GDP, he added. He said the fall in consumption was also a factor, but called lower real wages "temporary", adding that "we can be certain" real wages will rise in 2013, causing consumption to expand. Matolcsy said foreign-owned lenders took about HUF 2,700 billion of lending resources out of the Hungarian economy last year, an amount close to 10% of GDP. "If just a portion of these resources would have gone into the economy, it would have grown last year!" he added. Matolcsy said banks were "punishing" the Hungarian government for its "unconventional" measures, but he also blamed the withdrawal of lending resources from the country on the lack of cooperation between the cabinet and the central bank in the interest of growth, on households' cautious borrowing, and on earlier excessively high levels of external financing.

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