The leading analyst of financial advisor Quaestor said at a press conference last Tuesday that Hungary was unlikely to introduce the euro before 2014 and that the country’s chances of joining the ERM-II (the anteroom of the common currency) in the short term were “slim to none”.
Bálint Háda said that the only criterion Hungary might be able to meet was the rule on inflation, but warned that Hungary’s numbers are among the worst on government debt and current account deficit. The analyst said that the forint remains on a weakening course and a HUF 300 to the euro exchange rate is probably the best-case scenario, but if, the slowdown of the economy continues, this can be expected in the second half of the year.
Háda agreed with the majority of analysts who put Hungary’s GDP contraction for 2009 at between 4% and 5%, and the analyst said that the odds of remarkable reform steps are not very high: “not even if there are early elections”, he said, adding that a new government might also face a foreign exchange crisis.
When asked about a potential lifeline for the economy, Háda said that a boom in exports could do some good, but external markets do not show signs of regaining momentum in the near future. Quaestor’s analysis expects the contraction to continue throughout the year in Europe, but in the beginning of 2010 the US could lead the way for the UK, France and Germany to resume growth.
Meanwhile economic research institute GKI revised its earlier forecast of a 3.5% contraction to 4-5% last Wednesday. The researcher forecasts a 1% drop in real wages, but only calculates with a 3% budget deficit, mostly because of expenditure cuts expected in the second half of the year. Contrary to the beliefs of Quaestor, GKI anticipates a HUF 280 to the euro exchange rate by the end of the year.
The Government Institute for Research (Ecostat) also posted its forecast for the country’s GDP last week, saying that the economy will contract by 4.1% in 2009 and remain flat the following year. Ecostat predicts a 4-5% drop in real wages before the end of the current year and expects household consumption to shrink by 4.7%, while the unemployment rate rises to 9.5% from the 7.8% measured at the end of 2008.
Currency
After strengthening to the good side of the 300 mark at the beginning of the week, the forint started to slide slightly after the Central Statistical Office (KSH) announced its latest figures for retail sales last Tuesday, which showed a 2.8% decline in January compared to the corresponding period one year earlier.
Thursday’s announcement from two-time Central Bank governor György Surányi that he would not accept the candidacy of prime minister further weakened the national currency, which similarly to other currencies in the region strengthened temporarily in the afternoon, but remained at over 300 to the euro for the remainder of the week. An anonymous currency trader bitterly told the business daily Napi Gazdaság how fortunate it was that foreigners did not clearly see the “pathetic comedy” taking place in the succession process.
Sales down in January
Central Statistical Office (KSH) data on retail sales in January showed that households are spending less money on foodstuffs – with sales volumes of hypermarkets and grocery stores declining by 1.6% – but are spending the more on transportation, as the volume of petrol sold increased both yr-on-yr and in comparison to the previous month.
According to a Eurostat (the statistical arm of the European Commission), sales in the 27 member states of the European Union decreased by 1.2%, and for the eurozone countries by 2.2% compared to the same month in the previous year. Retail sales increased at the highest rate in the United Kingdom while Latvia and Lithuania showed the sharpest falls.
Domestic banks receive state loans
In order to reduce the effects of the global financial crisis and increase lending possibilities, the Hungarian state will provide a EUR 1.36 billion loan to OTP Bank and FHB Mortgage Bank, Minister of Finance János Veres announced last Wednesday.
The loan will come out of the EUR 20 billion stand-by loan Hungary received late last year from the IMF, the EU and the World Bank.
According to the agreement OTP will receive EUR 500.8 million, GBP 135 million, USD 818.2 million and JPY 20.1 billion (approximately HUF 400 billion or EUR 1.32 billion altogether), with the interest rate set at the benchmark rate plus 250 basis points for the given currencies.
Veres emphasised that these were loans based on market conditions and banks had to agree to forward the received funds to Hungarian individuals as well as SMEs. OTP also had to agree to put a representative of the state on both its supervisory board and audit board. There are already state representatives on the board of directors at FHB, which will receive HUF 120 billion (EUR 396.14 million) credit for home loans.
A day before the announcement OTP said that a seven-year USD 50 million subordinated loan to its Ukrainian affiliate would be provided, in concurrence with the 2009 business plan. According to OTP’s website, the credit is a part of the 2009 capitalisation plan. Similarly to Hungary, Ukraine was hit by the global crisis with its currency, with the hryvnia weakening significantly and industrial output falling sharply.
