gki zrt., gki.hu

GKI Zrt., www.gki.hu

Political and Economic ChallengesPolitical and Economic Challengesand Responsesand Responses

October 2009.

Dr. András Vértes

ChairmanGKI Economic Research Co.

Growth in selected countries and regionsGrowth in selected countries and regions, 2000-201, 2000-20100((preceding year = 100preceding year = 100))

Source: Eurostat, GKI GKI Zrt., www.gki.hu

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

USA EU Germany Hungary

Political

• survive the crisis• keeping under controll social tensions• continuing integration of Hungary to the EU

Economic

• maintaining financial stability• starting a decreasing path of state debt ratio• improving comptetitiveness with further reforms

Main challengesMain challenges


2 elections ahead:

• general April 2010• local Autumn 2010

Probably the Bajnai-gov. will keep the situation under controll, the 2010 budget will be adopted.

Hungarian Political RoadmapHungarian Political Roadmap


Good Chance for FIDESZGood Chance for FIDESZ


Likely the FIDESZ will win next elections.Likely the FIDESZ will win next elections.

• Unclear economic policy and populistic criticism.Unclear economic policy and populistic criticism.

• Double speech bought voters.Double speech bought voters.

• Some confrontative and EU-sceptic elements in the Some confrontative and EU-sceptic elements in the policy.policy.

But at the end they probably will maintain the But at the end they probably will maintain the economic equilibrium.economic equilibrium.

General government deficit and public debt General government deficit and public debt in the G-20 group, 2000-2014in the G-20 group, 2000-2014

(as a percentage of GDP)(as a percentage of GDP)

Source: IMF

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

60

65

70

75

80

85

90

95

100

105

110

General Government Deficit (left axis) Government Debt (right axis)


General government deficit in selected EU countries, General government deficit in selected EU countries, 2008-2010 2008-2010 (in per cent of GDP)(in per cent of GDP)

Source: European Commission (April, 2009), GKI GKI Zrt., www.gki.hu

-16

-14

-12

-10

-8

-6

-4

-2

0

EUAverage

Germany Austria UnitedKingdom

Ireland Estonia Slovakia Romania Poland Hungary

2008 2009 2010

Public debt of selected EU countries, 2008-2010Public debt of selected EU countries, 2008-2010(per cent of GDP)(per cent of GDP)

GKI Zrt., www.gki.huSource: European Commission (April, 2009), GKI

0

10

20

30

40

50

60

70

80

90

EUAverage

Germany Austria UnitedKingdom

Ireland Estonia Slovakia Romania Poland Hungary

2008 2009 2010

Hungarian Economy – On Different PathHungarian Economy – On Different Path

Terrible overspending was in 2000-2006 6-9% to GDP

But radical improvement in equilibrium in 2007-2008 deficit: 4,9 and 3,4% of GDP

IMF-EU loan helped a lot

From worst in the past Hungary will be the best in the region and one of the best in EU in 2009-2010. deficit target: 3,5-4% to GDP (EU and IMF approved) EU average ~ 6-7%


Speeding up Structural ChangesSpeeding up Structural Changes

Expenditure and revenue part as wellPension system 13th month, indexation, early retirement, handicaps now 11% of GDP will keep below 10% from now till 2060!!

Welfare children and family allowance, housing subsidies

Economic subsidies gas, heating, railway, local authorities

All budget cuts (compered with the accepted budget) are 2009: 1,4% of GDP 2010: 3% of GDP


Revenue in RecessionRevenue in Recession

2009 2010 GDP –6,5% stagnationWeak export and domestic markets, shrinkening borrowing possibilities. No room for fiscal alcoholism!!

Stimulous elements: 3-4% of GDP in 2010, peanuts in 2009• tax restructuring in 2009 (VAT, excise versus income tax)• definite income tax cuts in 2010 tax wedge from recent 54% down to 45% (Czech level)• speeding up EU-financed investments (3 bn euro)• targeted preferences to maintain workforce on the labour market


Share of qualified assets in banks, 2006-2009 Share of qualified assets in banks, 2006-2009

Source: Hungarian Financial Supervisory Authority GKI Zrt., www.gki.hu

0%

1%

2%

3%

4%

5%

6%

7%

8%

03.2

006

06.2

006

09.2

006

12.2

006

03.2

007

06.2

007

09.2

007

12.2

007

03.2

008

06.2

008

09.2

008

12.2

008

03.2

009

06.2

009

Corporate loans Household loans

Real EconomyReal Economy

Drops everywhere:• exports -15%, imports -18%, improving ToT, substantial trade surplus (4 bn euro) • industry -16%, mainly in manufacturing• building industry -5%• retail trade -7%• increasing number of insolvencies and bankruptcies• real wages -4%, raising saving ratio• private consumption -7%• investments -5%• inflation 4,4%, year end close to 6%• unemployment 10%


The exchange rate of Central Europiean currencies The exchange rate of Central Europiean currencies against the euro, 2008-2009 against the euro, 2008-2009 (31 December 2007 = 100)(31 December 2007 = 100)

Source: IMF GKI Zrt., www.gki.hu

85

95

105

115

125

135

02.0

1.20

08

02.0

2.20

08

02.0

3.20

08

02.0

4.20

08

02.0

5.20

08

02.0

6.20

08

02.0

7.20

08

02.0

8.20

08

02.0

9.20

08

02.1

0.20

08

02.1

1.20

08

02.1

2.20

08

02.0

1.20

09

02.0

2.20

09

02.0

3.20

09

02.0

4.20

09

02.0

5.20

09

02.0

6.20

09

02.0

7.20

09

02.0

8.20

09

02.0

9.20

09

HUF CZK PLN RON

Growth and Euro on the horizonGrowth and Euro on the horizon

Stagnation in 2010, 3-4% growth after

Euro in 2013-2014, ERM2 entry in 2010

• 100% fulfillment of Maastricht Criteria (deficit, debt ratio, inflation, long term interest rate)

• with some flexibility in practical (non-treaty) elements



Thank you for you attentionThank you for you attention

IMF-EU packageIMF-EU package

Helped in increasing foreign reserves, refinancing foreign debt, keeping up to the surface t-bond market.

But no need further!


GDP growth of selected EU countries, 2008-2010GDP growth of selected EU countries, 2008-2010

Source: European Commission, IMF, GKI GKI Zrt., www.gki.hu

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

EU A

vera

ge

Ger

man

y

Aus

tria

Uni

ted

Kin

gdom

Esto

nia

Slov

akia

Rom

ania

Hun

gary

2008 2009 2010

General government deficit and General government deficit and external financing external financing requirement in requirement in perper centcent of GDPof GDP, 2000-201, 2000-20100

Source:CSO, National Bank of Hungary, GKI GKI Zrt., www.gki.hu

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

General Government Deficit External Financing Requirement

GDP growth of Central European EU member countries, GDP growth of Central European EU member countries, 2000-2010 2000-2010 (1999 = 100)(1999 = 100)

Source: Eurostat, GKI GKI Zrt., www.gki.hu

90

100

110

120

130

140

150

160

170

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Hungary Czech Republic Poland Slovakia Slovenia

Reference rates, 2006-2009Reference rates, 2006-2009

Source: National Bank of Hungary GKI Zrt., www.gki.hu

0

2

4

6

8

10

12

14

2006

.01.

2006

.03.

2006

.05.

2006

.07.

2006

.09.

2006

.11.

2007

.01.

2007

.03.

2007

.05.

2007

.07.

2007

.09.

2007

.11.

2008

.01.

2008

.03.

2008

.05.

2008

.07.

2008

.09.

2008

.11.

2009

.01.

2009

.03.

2009

.05.

2009

.07.

2009

.09.

HU CZ PL RO

General government balance in per cent General government balance in per cent of the GDP, 2006-2010 of the GDP, 2006-2010

Source: Ministry of Finance, GKI GKI Zrt., www.gki.hu

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

2006 2007 2008 2009 2010

Balance (ESA-95) Primary balance

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