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Hungarian economy weathers Greek storm

Even Hungary’s government securities market came through unscathed, apparently due to interest from small local investors.

Minister of National Economy Mihály Varga: Greece a European problem.

While details were still being worked out at the time the Budapest Business Journal was going to press, it seemed likely that Greece would stay in the eurozone, the worst-case scenario would be avoided and Hungary would feel no major impact.

In fact, analysts said that, despite the uncertainties, the forint and the Hungarian government bond market were only mildly affected – and both have since recovered.

Uncertainty is the biggest problem in any crisis, as investors have no idea which way the market will move and so they choose to wait it out and not invest their money, said László András Borbély, deputy CEO of the Government Debt Management Agency (ÁKK) in a television program on Monday, after the Greek agreement hit the news.

According to him, however, the market for Hungarian government securities has not been affected by the Greek crisis or the general uncertainty concerning Greece.

The reason Hungary resisted such affects was that even though foreign investors were selling forint-denominated treasury bills – not necessarily because of the Greek situation – the domestic market gobbled up these papers. This was partially due to small investors, as households have been providing the biggest part of debt financing in recent times, Borbély added.

The currently endorsed rescue package and its expected consequences will not have a substantial impact on the operation of Hungary’s economic and financial systems, Minister of National Economy Mihály Varga said.

Varga: It’s Europe’s problem

At its July 14 session, ECOFIN ministers were informed of the issues on the agenda of the eurozone leaders’ summit (the Eurogroup), with special emphasis on the management of the Greek crisis. Following the meeting, Varga said that due to economic decisions of the past years and the remedy proposed by international, Greece is no longer capable of dealing with the dire economic situation alone. Fixing the Greek issue, Varga pointed out, has become a European problem.

The Eurogroup resolution published on Monday morning does not provide a final cure, as strict preconditions must be met before the next steps can be taken: among others, the parliaments of several countries – including those of Greece and Germany – must approve the plan before the official negotiations on program details can be started. As Varga stressed, the direct and indirect impacts of the loan package will place an enormous burden on Greek society.

In the meantime, the Central Statistics Office (KSH) released its latest inflation data for June, which, in line with analysts’ expectations, rose to 0.6% from 0.5% in the previous month. In May, consumer prices rose after declining for eight months in a row.

The year-on-year increase was lifted by a 3.6% rise in the price of alcohol and tobacco, 1.4% higher food prices and a 1.9% increase in prices of services. Consumer durable prices were up 0.8%, and clothing prices inched up 0.1%, while household energy prices fell 2.7% and prices in the category that includes vehicle fuel dropped 2.3%.

Core inflation, which excludes volatile food and fuel prices, was a seasonally adjusted 1.2%. In a month-on-month comparison, consumer prices rose 0.2% in June.

Analysts’ views on the inflation path is rather divided: K&H chief analyst Dávid Németh said CPI could rise to around 3% by year end, but put average annual inflation at 0.5%. Erste Bank analysts Vivien Barczel and Gergely Ürmössy put yearend CPI at 2.5% and average annual inflation at 0.3%, while Takarékbank’s Gergely Suppan forecast a yearend rate of more than 2% and a full-year rate of 0.4%.