The growth of the real earnings leads to expansion of the retail

According to the forecast prepared by GKI Economic Research Co. in co-operation with Erste Bank tthe Hungarian economy will get out from the last year’s “hole” in the second half of 2008.

In
the Q1 of 2008 the performance of the Hungarian economy was 0.9%
higher than in the corresponding period of the previous year. This is
a very slow growth but it is what was expected by the experts and is
somewhat faster than in the last quarter of 2007. Industrial
production and exports grew dynamically, while the decrease of the
output of the construction industry and retail trade slowed down. The
growth of the performance of the transport of goods slowed down
perceptibly, while that of the passenger transport accelerated a bit.
The 4.8% decline in the investments is basically a result of the
contraction in the government developments, while the investments in
the agriculture, domestic trade and tourism expanded by 20-50% –
although from a low basis.
In the year as a whole the expansion
of the economy, which was only 1.3% in 2007 is expected to reach
2.5-3% in 2008 and in the second half of the year the growth rate
will be around 3.5%. This will be basically the result of the
stabilization of those sectors, which declined in 2007, while the
industry – the main driving force of growth in 2007 – may even
slow down a little. After the last year’s poor performance of the
agriculture, the growth will be significant even if the weather will
be just normal. Several sectors, which declined in 2007 and in the
first months of 2008 (like construction, trade and public services)
will at least stagnate or even grow – contributing to the
improvement of the performance of the whole economy. In the second
half of the year new EU-supported developments will start in the
infrastructure improving the situation in the construction industry.

The moderate growth of the real earnings sooner or later will
lead to modest expansion of the retail trade turnover. Last year the
public services decreased. This year – since out-of-pocket
co-payments for doctors visits have been eliminated – the demand
for health care services and the apparent contribution of the health
sector to the GDP will increase, while the contribution of the
education probably will decrease. All these factors will make
probable bottoming out from the last years “hole” of the growth
of the economy – even if the industrial production will slow down
due to the deteriorating European economic environment. This will
mean that the speed of the Hungarian economic growth will be already
faster than the EU average, but slower than the development in the
new member states.
In the first quarter the trade balance of
goods was positive, but the balance for the whole year probably will
be around zero, because the slowly expanding investment and
consumption demand will push up the imports. In the first four months
of the year the deficit of the general government was considerably
lower than in the corresponding period of the previous year. Since
December 2007 inflation has been slowing down by 0.2 percentage
points each month (in April only by 0.1%). In 2008 the annual average
inflation is expected to be around 6-6.5% and by the end of the year
around 5%.
For the time being the increase of the gross wages in
the business sector is considerably higher than the upper limit of
the 5-7.5% band recommended by the National Interest Reconciliation
Council: it is close to 11%, which was a 2% increase in real earnings
in the first quarter. The increase of gross earnings is similar in
the public sector as well. During the year as a whole average real
earnings will grow by 1%, but within this the wages in the public
sector will stagnate.
Given the improving financial assessment of
the region, the high and several times increased base rate of the
central bank, the forint is very strong. It will be unavoidable to
lower the interest rates during the rest of the year.