periscope - mfb · periscope periscope 2 august 2014 cluster 1: crop production, textile industry,...
TRANSCRIPT
PeriscopeHungarian Development Bank’s monthly report
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Authors:Erzsébet Gém Chief economist
Álmos Mikesy ([email protected])Zsolt Szabó ([email protected])
Publisher: MFB Hungarian Development Bank Private Limited CompanyEditor in chief: Erzsébet GémContact: Nádor utca 31. H-1051 BudapestTel.: +36 1 428 1772 Web: www.mfb.hu
The views expressed in the analyses published by MFB Plc reflect the
authors’ personal views and do not correspond in any circumstances
to the Bank official views. The analyses are based on data obtained
from credible sources but the authors do not take responsibilities for
their authenticity. MFB Plc and the authors are not responsible for the
accuracy of the forecasts.
F o c u s
Cluster Analysis of the Competitiveness of Hungarian Industriesfrom a Development Policy Perspective
Using the methods of clustering (grouping on the basis of common traits and characteristics), the industries involved in the Hungarian Development Bank’s (MFB) Spring 2014 corporate survey (MFB INDICATOR) can, on the basis of factors evaluated by and determining the competitiveness of companies, be divided into four clearly distinct sectoral blocks that could be supported using different development policy tools.
The sectoral clustering was based on the answers given to the 15 questions in MFB’s Spring 2014 representative survey of Hungarian companies of various sizes, regions and branches. 4000 companies participated in the questionnaire-based survey, out of which 487 replied to the questions, and ultimately the responses of 444 respondents were used due to the lack of data.
The 15 questions relevant to the categorisation (Table 1) explored companies’ competitiveness, and included questions pertaining to production resources (labour, financing, technology used, etc.), corporate strategy (long-term strategy, company flexibility, marketing), corporate relations (suppliers), market competition (growth potential) and the owners’ role (commitment). A subset of the questions asked can also be grouped by whether they approached competitiveness from the expenditure side of products/services (costs) or from a qualitative standpoint (technology used, licenses, R&D&I). On the whole, the analysis approached corporate competitiveness from multiple angles, taking maximum account of potentially available questions.
Based on the responses to the MFB INDICATOR survey, we were able to obtain an overview of 22 sectors: crop production, livestock farming, hunting and forestry, food industry, energy, construction, wood processing, metal processing, machinery manufacturing, road vehicle manufacturing, textile industry, chemical production, vehicle sales and repair, info-communication services, real estate, retail sales, community services, engineering, wholesale, transportation and warehousing, accounting consultancy, tourism and catering. Agriculture, industry and services are therefore represented by 3, 9 and 10 branches, respectively.
Relying on the 15 questions and using hierarchical rather than non-hierarchical clustering methods, we broke down the 22 sectors into four clusters using the SPSS software.
(Continued on page 2)
ῳ Slowdown in Western European recovery poses a risk to the domestic manufacturing industry... (Page 5)
ῳ Improving consumer confidence and 3.8% growth in retail sales in June... (Page 6)
ῳ New jobs in the industry are the main contributors to employment growth... (Page 7)
ῳ After a three-month decrease, consumer prices in Hungary were once again on the rise in July... (Page 8)
ῳ By June interest rates on long-term corporate loans in Hungary shrank below the Polish rate... (Page 9)
ῳ Worsening external conditions and domestic trends both contribute to a weakening of the forint... (Page 10)
ῳ This year’s deficit target could still be met despite the figures from the first half-year... (Page 11)
Content
Periscope
Periscope August 20142
Cluster 1: crop production, textile industry, vehicle sales and repair, retail sales, transportation and warehousing,
tourism and catering
On the whole, it is cluster 1 where competitiveness suffers from the most factors examined (Table 1). In these industries neither the import nor the development of technology is typical (the production/service provision technology used is relatively outdated, research and development activities are not typical, and the level of patent and license utilisation is relatively low). There is a shortage of appropriately qualified employees, and the average qualification level of the existing workforce is also relatively low, as only a small percentage of companies invest effort, time and money in this aspect. The combined result of these factors is that the quality and price of products/services both have serious competitiveness problems, and this cluster has the lowest growth potential among the sectors both domestically and abroad. According to the respondents, corporate strategies are neither long-term nor flexible, and the financing situation of sectors in this cluster is among the worst.
These companies are hindered the most by all of the obstacles examined by the survey in their investments, but at the same time, the majority of incentives (changing market demands, market competition, rising incomes, improvement in financing situations, the Funding for Growth Scheme of the Central Bank of Hungary, and the technological changes in the sector) have the most positive impact on development in this cluster, meaning that investment activity in these sectors has the potential to become more dynamic if appropriate targeted means are used.
As far as development policy tools are concerned, the competitiveness of these sectors can, on the whole, probably only be improved by means of extensive, complex support. Efforts to treat specific neuralgic spots will probably be insufficient to improve the situation in the long term, considering that any unresolved bottlenecks would continue to impede the consolidation of the sector in question. However, from a development policy standpoint it is definitely favourable that sectors in this cluster respond positively to the majority of investment incentives.
Cluster 2: livestock farming, hunting and forestry, food industry, construction, wood processing, metal processing, machinery manufacturing, road vehicle manufacturing, chemical production, real estate, wholesale
In terms of competitiveness, cluster 2 similarly suffers from a relative lack of qualified workforce and a high level of production costs, but on the one hand, this cluster is not the worst performer in terms of other dimensions impacting competitiveness, and on the other hand, aside from a few factors (the companies have relatively good reputations on the market, have considerable growth potential on export markets, and are in relatively favourable financing situations) these sectors have a definite competitive advantage (Table 1).
Investment activity over the past 12 months was the highest in this group of companies (Chart 1), and this trend could persist over the next 12 months as well. This cluster had the highest rate of expansions, modernisations, profile changes or extensions, stabilisation and equipment purchases, and it is also the cluster where companies are the most active as far as the future is concerned; however, human resources development is moderate. In this cluster, the growth of foreign market demand provides a relatively large boost to investments (Table 2).
This corporate segment has the highest rate of plans for involving funds or borrowing over the next year (Chart 2), because 1. there is a high percentage of companies with plans for expansion or modernisation, 2. companies in this cluster are the most optimistic about their ability to repay loan interests (Chart 3), 3. companies in this cluster considered the largest number of acceptable loan collaterals to be feasible, 4. this cluster considered the trends in financing supply, central bank lending incentives and interest rates over the previous 12 months to be the most positive, 5. actors in this category had less trouble with obstacles to borrowing, and 6. these are the sectors that mostly expect an improvement in bank’s perceptions of both the companies and their sectors over the next 12 months.
Table 1: Company characteristics in the various clusters(1–5 Likert scale; 1 – least typical according to the company;
5 – most typical according to the company)
1 2 3 4
The company’s products are of high quality 4.23 4.38 4.67 4.52
The cost level of production/service provision is low 2.90 2.88 3.82 3.09
The company uses high-quality technology 3.49 3.72 3.85 4.26
The company’s name is renowned on the market 3.84 4.19 4.28 3.75
The company’s products are renowned on the market 3.93 4.07 4.28 3.74
The company has considerable domestic growth potential 2.37 2.85 2.38 3.12
The company has considerable growth potential abroad 2.19 3.21 2.45 2.99
The company has a long-term strategy 3.44 3.93 4.20 3.61
The company’s strategy is adapted to market challenges 3.67 4.06 3.93 4.10
The company has its own licenses or patents 2.13 2.43 2.73 4.11
The company pursues continuous R&D&I activities 2.13 2.91 3.21 3.21
Qualified employees with specific skills 3.60 3.76 4.31 4.25
The company has stable supplier relations 4.03 4.16 4.47 3.66
The company’s suppliers deliver reliable quality 3.90 4.06 4.25 3.72
The owners are committed to the company in the long term 4.61 4.56 4.52 4.77
The company is in a good financing situation 3.58 3.82 3.53 3.74
Access to external sources is unobstructed 3.50 3.66 2.93 3.51
Source: MFB INDICATOR corporate survey, Spring 2014
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Proportion of companies reportingexcess capacity minus proportion of
companies having shortage of capacity
Proportion of companies planninginvestments in the upcoming 12
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Proportion of companies madeinvestments in the past 12 months
Cluster 1Cluster 2Cluster 3Cluster 4
Chart 1: Corporate investments and capacity utilization
Source: MFB INDICATOR corporate survey, Spring 2014
Periscope
Periscope August 20143
This cluster shows the highest level of interest in state funds, European Union aid, buyers’ or suppliers’ loans, borrowing (including CBH’s Funding for Growth Scheme), leasing and venture capital (Table 3). Overdraft facilities, working capital loans and development loans were generally the most popular in this group, both in the previous 12 months and in the next months according to the companies’ plans. The sectors in this cluster pay the most attention to collaterals when applying for loans.Companies in this cluster could be supported by development policy products targeting foreign market expansion and cost reduction, and thus loan products facilitating the expansion of production, export loans and guarantees, funds supporting technological modernisation, and programmes promoting training and further training could be effective incentives. As far as development policy tools are concerned, loan-related financing and the provision of non-repayable funds could be more beneficial than equity financing.
Cluster 3: energy sector, community services
In the case of companies in the third cluster, factors serving as foundations for and supporting competitiveness vastly outweigh the obstacles (Table 1). The quality and price of products/services is favourable, and the companies and their products/services are relatively well-known on the market. There are several reasons for this: the quality and stability of supplier relations is definitely good, the corporate segment is characterised by relatively intensive research and development activities, the workforce is appropriately qualified, and not only are companies’ activities backed by long-term strategies but these strategies are able to adapt relatively quickly to changes in market demands. However, one of the main obstacles to the development of the sector is that its domestic growth potential is limited, and that the companies are in below-average financing situations and have limited access to external financing.
Development activity in the previous 12 months was mostly moderate in this group, but companies’ plans indicate a major investment boom over the next one-year period (Chart 1). It was this cluster where cost-cutting investments, as well as IT development and workforce training were the most important, and will continue to remain key investment objectives, whereas the importance of production expansion was the lowest in this group.
Table 2: Investment objectives in the previous and next 12 months in the various clusters(percentage of companies’ responses; multiple choices possible)
Previous 12 months Next 12 months
Cluster 1 Cluster 2 Cluster 3 Cluster 4 Cluster 1 Cluster 2 Cluster 3 Cluster 4
Expansion of production 30.0% 42.3% 16.4% 16.0% 25.5% 41.2% 23.2% 27.6%
Modernisation of technology 34.6% 58.2% 46.6% 33.1% 43.1% 60.2% 45.3% 37.4%
Change or extension of profile 5.0% 8.9% 2.7% 2.1% 7.2% 12.0% 8.1% 4.2%
Company stabilisation 22.8% 21.5% 6.8% 14.8% 30.2% 35.1% 17.8% 15.3%
Reorganisation of company activities 1.7% 4.5% 2.7% 2.8% 2.1% 5.6% 4.1% 2.8%
Replacement of dteriorated assets 29.6% 42.5% 55.0% 32.0% 33.3% 45.1% 39.9% 27.6%
Cost reduction 16.6% 23.1% 28.8% 7.6% 24.4% 24.3% 42.6% 14.0%
Wage cost reduction 3.7% 6.4% 8.3% 4.9% 5.4% 6.1% 8.3% 4.9%
Energy cost reduction 12.1% 14.4% 27.5% 2.8% 17.0% 18.5% 35.8% 3.0%
Material cost reduction 5.4% 8.1% 11.0% 2.8% 9.9% 11.3% 12.4% 8.1%
Logistics cost reduction 2.6% 5.7% 9.7% 2.1% 2.0% 6.4% 11.0% 5.1%
Company management cost reduction 2.3% 2.5% 0.0% 0.0% 3.6% 1.2% 1.4% 2.8%
Real property purchase 15.5% 19.0% 24.8% 8.8% 6.7% 21.1% 41.4% 3.0%
Machinery purchase 27.2% 52.8% 38.3% 16.0% 33.9% 53.3% 31.5% 22.3%
IT development 24.5% 33.9% 59.0% 35.9% 23.4% 27.0% 43.9% 40.2%
Workforce training 8.8% 8.4% 12.4% 13.7% 6.1% 8.3% 11.0% 10.2%
Source: MFB INDICATOR corporate survey, Spring 2014
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The proportion of companiesplanning demand for loans in the
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The proportion of companiesdemanded for loans in the past 12
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The proportion of companiesplanning demand for external
funding in the upcoming 12 months
Cluster 1Cluster 2Cluster 3Cluster 4
Source: MFB INDICATOR corporate survey, Spring 2014
Chart 2: External funding and loan demand(proportion of answers in the four clusters)
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Interest rates oninvestment loans in Spring
2015 expected by thecompanies (%)
Interest rates oninvestment loans in the
upcoming 12 monthsconsidered affordable by
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Difference(percentage point)
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Chart 3: The expected and the affordableinterest rates on investment loans
Source: MFB INDICATOR corporate survey, Spring 2014
Periscope
Periscope August 20144
Environmental and other regulations are also relatively important incentives for development in this segment (Table 2).
In the previous one-year period, this cluster showed the least interest in the various types of loans (Chart 3); however, when looking at the next 12 months, funds from commercial banks, savings co-operatives and other financial institutions, as well as MFB loan products, are the most popular in this group.
The financing situation of the majority of companies in this cluster is deteriorating. This segment also has the highest percentage of companies expecting an increase in loan supply and a further decrease in interest rates. This is the only cluster where companies expect banks’ perceptions of both the companies and their sectors to grow worse in the next 12 months.This cluster has the most negative view of the majority of obstacles to borrowing, and companies in this group have the greatest difficulty with the amount and type of collaterals. Companies in this group had a highly negative attitude to half of the types of loan collateral deemed acceptable, but they are also aware that this attitude lowers their chances at obtaining loans, considering that they perceive that collaterals and coverages offered have an extremely large impact on the evaluation of loan applications and on the loan amounts granted. Despite the aforesaid, this was the only corporate segment where the trends in collateral requirements in the previous one-year period were seen as favourable.
The main way to help this cluster remain on its feet could be to improve access to financial sources in general. This requires a development policy approach that on the one hand does not insist on extensive development, acknowledging the additional impact of the development of these areas on broader segments of society, and on the other hand also tolerates longer rates of return. Based on the expectations for intense loan demand and growing loan supply, easing the negative attitude towards collaterals (through information, the acceptance of other forms of collateral, etc.) and expanding the supply of loans with low in-terest rates could increase companies’ appetites for loan products, and at the same time, capital financing could also have utility based on companies’ investment plans and their aversion to collaterals.
Cluster 4: info-communications services, engineering, accounting consultancy
The fourth cluster has several characteristics that give it a competitive advantage (Table 1). The technology used is relatively high-standard, license and patent use, as well as R&D&I activities within companies can be considered intensive, and companies are generally satisfied with the qualification level of their workforce. Domestic growth potential is substantial, corporate strategies are able to flexibly adapt to market changes, and owners in this cluster are the most committed to their companies. However, the sectors’ opportunities for development are limited by problems related to the stability and quality of supplier relations, as well as the recognition of the companies and their products/services on the market.
Although obstacles to investment are the ‘softest’ in this corporate segment, it is also this cluster where the least intensive investment activity is expected over the next one-year period (Chart 1), while increasing the level of human resources can be considered one of the development priorities. The expected growth in internal demand and rising incomes are significant incentives to investment in this cluster.
While these sectors experienced obstacles to borrowing to a lesser extent, this cluster is the most averse to applying for funds and loans (Chart 2) in addition to developments, and companies in this segment show below-average interest in almost all of the forms of financing examined (Table 3). The reasons for this are the following: 1. the companies in this cluster are the most pessimistic about their ability to cover interests; 2. this group is the least confident that loan supply will increase; 3. this group considered about half of the various forms of collateral required when applying for loans to be the least acceptable; 4. this segment was the most critical about trends in financing supply, central bank lending incentives and interest rates over the previous 12 months. This group attaches the least importance to collaterals and coverages in the evaluation of loan applications, and this cluster pays the least attention to the various circumstances arising when applying for loans (companies in this group take the least account of the majority of potential factors).
There could be three potential ways to support the competitiveness of this cluster. On the one hand these industries could be invigorated through the reinforcement of marketing activities, the hiring of experts with knowledge and skills relevant to promotion, the increase of spending on advertising, involvement in the activities of trading houses, and participation in domestic and international fairs and exhibitions, and on the other hand, incentives for supplier relations could provide them with support and growth potential, and subsidies for training courses and conferences could help boost their competitiveness and maintain their competitive advantage.
Table 3: Channels for involving fundsin the next 12 months in the various clusters
(percentage of companies’ responses; multiple choices possible)
1 2 3 4
State aid 15.9% 34.2% 24.5% 10.0%
EU funds 21.7% 43.2% 35.6% 14.1%
Borrowing 33.1% 46.2% 36.9% 31.6%
- Commercial banks' loan products 19.6% 22.7% 27.5% 13.7%
- Cooperative credit institutions’ loan products 0.8% 4.2% 9.7% 3.0%
- Loan products of other financial institutions 0.4% 1.2% 8.3% 2.1%
- Funding for Growths Scheme of CBH 14.6% 22.4% 13.7% 17.9%
- MFB loan products 9.4% 4.3% 20.5% 7.2%
Leasing 16.4% 17.1% 8.1% 7.2%
Involvement of external capital investors 1.1% 1.0% 0.0% 0.0%
Venture capital 0.0% 0.3% 0.0% 0.0%
Other investors’ resources 1.1% 0.5% 0.0% 0.0%
Buyers’ or suppliers’ loans 7.3% 8.9% 2.7% 0.0%
Loans from owners/parent companies 6.3% 11.4% 27.7% 12.3%
Source: MFB INDICATOR corporate survey, Spring 2014
Periscope
Periscope August 20145
Foreign trade and industrySlowdown in Western European recovery poses a risk to the domestic manufacturing industry• Export volumes grew by 5.9% and import volumes rose by 8.5% (y/y) in May 2014. The surplus of the trade balance
amounted to HUF 913.2 billion in the first five months of the year, HUF 77.9 billion higher than one year before (Chart 1).• Industrial production saw 9.6% growth (y/y) in May, while preliminary data indicate that in June the rate of growth was
11.3%. Manufacturing industry performance grew by 10.6% (y/y) in the fifth month of the year: vehicle manufacturing continues to be the main driver, and only three subsectors experienced a decline. The reason for the weak performance of the pharmaceutical industry is the prolonged Russia–Ukraine conflict. The amount of both domestic and export orders grew by more than 10% (15.6% and 13.7% y/y, respectively) in May. However, faltering European recovery represents a risk to the sector, and at this point it is uncertain whether the two-digit growth in production will continue in H2 2014 (Charts 2–4).
• Construction industry performance rose by 28.7% (y/y) in May. The stock of orders is still at a high level, but the trend in new contracts foreshadows a slowdown (for the first time in over a year, the value of new contracts fell in the fifth month of the year and was down by 1.1%). The housing market still shows no sign of notable recovery (Charts 5–6).
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Wood and paper prod.
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Chart 3: Production* of the manufacturing sub-sectors(May 2014)
Sources: HCSO, MFB
* the same period of the last year = 100%
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Sources: HCSO, MFB
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Chart 4: German business expectations (IFO index) and Hungarian manufacturing production
Sources: HCSO, CESifo, MFB
IFO index: adv. 3 months
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Chart 6: The number of dwelling construction permits issued and the number of dwellings built
Sources: HCSO, MFB
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Chart 2: Industrial production* in Hungary
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Chart 1: External trade volume in Hungary
Sources: HCSO, MFB
Periscope
Periscope August 20146
ConsumptionImproving consumer confidence and 3.8% growth in retail sales in June• After the decline seen over the previous two months, consumer confidence in Hungary experienced moderate growth in July
2014. In a regional comparison, Hungary is the third in terms of the optimism of households’ expectations after the Czech Republic and Slovakia (Charts 1–2).
• Preliminary data indicate that the considerable slowdown in the growth of retail sales registered in May (+4.9% y/y after the 6.3% in April) continued in June as well (+3.8%), due to the fact that the low-turnover first months were no longer part of the basis. Non-food products in particular experienced a decline in May and June (Charts 3–4).
• The sudden surge in household borrowing seen in May proved to be temporary. In June 2014 savings were once again up, with the most popular forms being government bonds (domestic debt securities: +111.2 billion HUF) and investment fund shares (+41.3 billion HUF) (Chart 5). The households were a net loan repayer in the sixth month of the year: according to transactions, the level of debt fell by HUF 21.6 billion, as the HUF 8.8 billion growth in forint loans was offset by the HUF 30.4 billion decline in foreign currency loans (Chart 6).
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Consumer confidence Economic prospect Business sentiment
Chart 1: Sentiment indicators and economic prospects in Hungary
Sources: GKI (GKI Economic Research Co.), MFB-70
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Poland Czech Republic Slovakia Hungary Romania
Chart 2: Consumer confidence* in Central and Eastern Europe
Sources: European Commission, MFB
* seasonally adjusted data
-12%
-8%
-4%
0%
4%
8%
12%
-6%
-4%
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6%
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Month/month (LHS) Year/Year (RHS)
Sources: HCSO, MFB
Chart 3: Retail trade volume in Hungary
-10%-8%-6%-4%-2%0%2%4%6%8%10%
-10%-8%-6%-4%-2%0%2%4%6%8%
10%
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Non-food products Foods Fuels
Chart 4: Retail trade by the main product groups (y/y)(volume index adjusted for calendar effects)
Sources: HCSO, MFB
-400-300-200-1000100200300400
-400-300-200-100
0100200300400
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HU
F bi
llion
HU
F bi
llion
Domestic quoted shares Domestic investment fund sharesDomestic debt securities* Domestic bank depositCash (foreign currency) Cash (HUF denominated)Total financial assets
Chart 5: Households' financial assets(by transactions)
Sources: CBH, MFB
*government and other securities
-350-300-250-200-150-100-50050100
-700-600-500-400-300-200-100
0100200
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HU
F bi
llion
HU
F bi
llion
Loans denominated in foreign currencies (LHS)HUF loans (LHS)Total loans (RHS)
Chart 6: Changes in households' loans through transactions
Sources: CBH, MFB
Periscope
Periscope August 20147
Labour marketNew jobs in the industry are the main contributors to employment growth • Similarly to the March–May period, the rate of unemployment in Hungary remained at 8.0% between April and June, which is
2.3 percentage points lower than one year before (Chart 1). The most noticeable decreases in unemployment were registered among the youngest generation, among people with lower levels of education, and in the Central Transdanubian Region (Chart 2). In Q2 this year, the number of employed people was 190.2 thousand higher than the level recorded in the same period of last year. This growth was driven mostly by the increase in industrial jobs requiring secondary education, followed by the rise in the number of jobs registered in public services due to public works programme. The number of people working abroad fell by 5.4 thousand between April and June 2014 (Chart 3). With the Winter public works programme coming to an end, the number of public workers fell from 211.8 thousand to 98.8 thousand (Chart 4).
• In June, employers announced 20.5 thousand new unsubsidised (market) jobs, exceeding the level of one year before by nearly 30% (Chart 5).
• Net and gross average earnings both rose by 4.0% (y/y) in the fifth month of the year (Chart 6).
-5%
0%
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10%
15%
-5%
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15%
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Net wages* Net real wages*
Sources: HCSO, MFB* excluding family tax benefits
Chart 6: Wages in the Hungarian economy without fostered workers(y/y, 3-month rolling average)
-300%
-150%
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150%
300%
450%
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750%
0
50
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thou
sand
peo
ple
Number of fostered workers (LHS)Changes in number of fostered workers (y/y, RHS)
Sources: HCSO, MFB
Chart 4: Number of fostered workers in Hungary
-75%
-50%
-25%
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25%
50%
75%
100%
0
25
50
75
100
125
150
175
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thou
sand
Registered new vacancies (LHS) Not supported new vacancies (y/y, RHS)
Chart 5: Total registered new vacanciesand not supported vacancies
Sources: National Employment Service, MFB
-250
255075
100125150175200225
Pri
mar
y
Seco
nda
ry
Col
lege
/un
iver
sity
Cen
tral
Hun
gary
Cen
tral
Tra
nsd
anu
bia
Wes
tern
Tra
nsd
anu
bia
Sout
her
n T
rans
dan
ubia
Nor
ther
n H
un
gary
Nor
ther
n G
reat
Pla
in
Sout
her
n G
reat
Pla
in
Agr
icu
ltur
e
Indu
stry
Man
ufa
ctu
ring
Con
stru
ctio
n
Serv
ices
Mar
ket
serv
ices
Pu
blic
ser
vice
s
Wor
kin
g at
dom
esti
c lo
c.
Wor
kin
g ab
road
thou
sand
peo
ple
Sources: HCSO, MFB
Chart 3: Changes in the number of the employed by education, region and economic branches
(Q2 2014 - Q2 2013)
-8
-6
-4
-2
0
2
15–2
4
25–2
9
30–3
4
35–3
9
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4
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9
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4
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9
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4
Pri
mar
y
Seco
ndar
y w
/o g
radu
atio
n
Seco
ndar
y w
ith
grad
uat
ion
Col
lege
/un
iver
sity
Cen
tral
Hu
ngar
y
Cen
tral
Tra
nsda
nub
ia
Wes
tern
Tra
nsda
nubi
a
Sou
ther
n Tr
ansd
anub
ia
Nor
ther
n H
unga
ry
Nor
ther
n G
reat
Pla
in
Sou
ther
n G
reat
Pla
in
Age group Education Region of residence
perc
enta
ge p
oint
s Sources: HCSO, MFB
5. ábra: A munkanélküliek számának alakulása iskolai végzettség, regionális és szektorális bontásban
Chart 2: Changes in the unemplyoment rate (Q2 2014 - Q2 2013)by age, education and region
6%7%8%9%10%11%12%13%14%15%
-150-100
-500
50100150200250300
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thou
sand
peop
le
Changes in number of unemployed persons (LHS)Changes in number of employed persons (LHS)Unemployment rate (RHS)
Sources: HCSO, MFB
* employed people andregistered job-seekers together
Chart 1: Changes in economically active population*and the unemployment rate
Periscope
Periscope August 20148
InflationAfter a three-month decrease, consumer prices in Hungary were once again on the rise in July• The average daily global market price per barrel of Brent crude oil sank from USD 111.8 in June to USD 106.9 in July (-4.3%)
(Chart 1). The reasons behind the decrease are the considerable growth in oil production in Libya, and mounting concerns over the slowdown of global economic growth (Chart 2).
• The average rate of price increase in the eurozone remained 0.5% in June, the same as in May, and then fell to 0.4% in July according to preliminary data. As a result, deflation concerns in the euro area remained prevalent. The 12-month rate of inflation in the US and China was 2.1% and 2.3%, respectively, in the sixth month of the year.
• After the June inflation rate of -0.3%, consumer prices in Hungary rose by 0.1% y/y and by 0.2% compared to the previous month in July 2014. The considerable (2.4%) drop in the sale of articles of clothing compared to June was the result of summer sales. The decrease in food prices was due to favourable yields. However, the prices of fuel and services both rose (Charts 3–5).
• The underlying inflation indicators continue to foretell a persistently low level in price dynamics (Chart 6).
0%
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Demand sensitive* inflationCore inflation excluding indirect taxesSticky price inflation
Chart 6: Underlying inflation indicators (y/y)
Sources: CBH, MFB
*excluding changes in processed food prices from core inflation
adjusted for tax changes
85
90
95
100
105
110
115
120
350
375
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425
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525
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$/ba
rrel
CRB commodity price index (LHS) CRB foodstuff price index (LHS)Brent Crude Oil (RHS)
Chart 1: Commodity price indices and world crude oil price
Sources: Reuters, MFB
-2,5%
0,0%
2,5%
5,0%
7,5%
10,0%
-2,5%
0,0%
2,5%
5,0%
7,5%
10,0%
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USA Eurozone China
Chart 2: Consumer price index (y/y) in the USA, the eurozone, and China
Sources: Reuters, MFB
-2%
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2%
4%
6%
8%
-2%
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8%
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Core inflation Consumer price index
Chart 3: Impact of changes in tax rates on consumer prices (y/y)
Sources: CBH, MFB
0.1%
-12.0%
-1.0%
-0.4%
-0.4%
0.9%
1.8%
7.3%
-15% -10% -5% 0% 5% 10%
Total
Fuel and power
Clothing and footwear
Food
Consumer durable goods
Other goods, including motor fuels
Services
Alcoholic beverages, tobacco
Chart 4: Yearly changes of consumer prices by the main groups of products and services (July 2014)
Sources: HCSO, MFB
0.2%
-2.4%
-0.6%
-0.1%
0.0%
0.0%
0.7%
0.9%
-3,0% -2,0% -1,0% 0,0% 1,0%
Total
Clothing and footwear
Food
Alcoholic beverages, tobacco
Consumer durable goods
Fuel and power
Other goods, including motor fuels
Services
Chart 6: Monthly changes of consumer prices by the main groups of products and services
0.4%Chart 5: Monthly changes of consumer prices by the main groups of
products and services (July 2014)
Sources: HCSO, MFB
Periscope
Periscope August 20149
Corporate fundingBy June interest rates on long-term corporate loans in Hungary shrank below the Polish rate• In June, the loan portfolio of the corporate sector grew (+78.6 billion HUF), but the improving statistics were due in part to
the devaluation of the forint: as far as transactions were concerned, the portfolio of corporate loans grew only by HUF 11.4 billion, with a growth of HUF 3.7 billion in forint-denominated and HUF 7.7 billion in foreign currency loans (Charts 1–2).
• This has been the fifth month where companies took out more loans in the national currency than they repaid, which is likely due both to the second phase of the Funding for Growth Scheme and the increasing willingness of the financial sector to lend (Chart 3); nevertheless, the loan portfolio of Hungarian companies continues to shrink at a rate higher than the regional average on an annual level (Chart 4).
• In line with the central bank’s monetary loosening cycle, interest rates on forint loans sank to a new historic low in June: the average interest rate on 1–5-year forint-denominated loans melted to 4.85%, while interests on loans with longer maturities were down to 4.66%, meaning that the latter is now lower than the interest rates on loans offered under similar conditions in Poland (4.69%) (Charts 5–6).
0
1 000
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HU
F bi
llion
HU
F bi
llion
Non-financial corporations Other financial corporationsHouseholds Local governments
Chart 1: Total amount of loans by counterparties
Sources: CBH, MFB
0%
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14%
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BUBOR
EURIBOR
HUF loans -over 5 years
HUF loans - 1-5years
EUR loans inHungary - over5 yearsEUR loans inHungary - 1-5years
Chart 5: Interbank interest rates*, andinterest rates on corporate loans**
** annualised interest rates weighted by month-end values* 3-month interbank rates
Sources: ECB, CBH, MFB
0%
2%
4%
6%
8%
10%
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14%
16%
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Hungary
CzechRepublic
Poland
Slovakia
Romania
Bulgaria
Chart 6: Interest rates on corporate loans* in Central and Eastern European countries
Sources: ECB, CBH, MFB
* annualised interest rates over 5 year maturity, weighted by month-end values, in national currency
-15%
-10%
-5%
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10%
15%
20%
-15%
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20%
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Czech Republic Poland Romania Slovakia Hungary
Chart 4: Change in total amount ofoutstanding non-financial corporate loans (y/y)*
Sources: ECB, MFB
* change in total value converted to euro
-20%
0%
20%
40%
60%
80%
100%
Q1
2009
Q2
2009
Q3
2009
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2009
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2010
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2010
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2010
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2010
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2011
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2011
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2012
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2012
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2012
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2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Large and medium corporations Small and micro enterprises
Chart 3: Estimation of change in the credit supply in the next 6 months according to the Hungarian credit institutions*
* net change indicator, proportion of bank planning increase minus proportion of banks planning decrease
Sources: CBH lending surveys, MFB
-250-200-150-100-50050100150200250300350400
-250-200-150-100
-500
50100150200250300350400
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HU
F bi
llion
HU
F bi
llion
HUF loansLoans denominated in foreign currenciesTotal loans
Chart 2: Change in total amount of outstandingnon-financial corporate loans through loan transactions
Sources: CBH, MFB
Periscope
Periscope August 201410
Exchange ratesWorsening external conditions and domestic trends both contribute to a weakening of the forint• Mounting concerns in late July over possible state bankruptcy in Argentina, the increasingly certain US interest rate hike
foreseen for next year, as well as the deepening of the conflict in Ukraine at the end of the month generated a significant wave of sale in the case of emerging currencies; on a monthly level, the Polish zloty lost 0.3%, the Czech koruna 0.4%, the Romanian leu 1.0% and the Hungarian forint 1.2% in value against the euro. Performing below the regional average, the exchange rate of the forint against the US dollar rocketed to an almost one and a half year high, and broke three-month records against the euro and the Swiss franc, respectively (31 July: 233.9 HUF/USD, 313.0 HUF/EUR, 257.2 HUF/CHF) (Charts 1–3).
• In addition to external circumstances, country-specific factors also accelerated the devaluation of the forint: according to the calculation rules revealed in July, the elimination of retail foreign-currency loans could impose a burden of around HUF 900 billion on the banking system, the conversion of CBH’s two-week bonds to deposits as of August has lead to a partial reallocation of international funds, and in the previous month the expectations of actors in the real economy fell to a six-month low (Chart 4). With its 20 basis point cut in July, CBH completed the interest rate cut cycle launched two years ago, but the yield premium on Hungarian assets has shrunk at such a high rate over the past month that their attractiveness has diminished (Charts 5–6).
5
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295
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poin
t
HUF/EUR (LHS)
VIX index (RHS)
Chart 1: The HUF/EUR exchange rate and the global risk appetite
Sources: CBOE, ECB, MFBincreasing global risk appetite
210
220
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270
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285
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HUF/EUR (LHS) HUF/USD (RHS) HUF/CHF (RHS)
Chart 3: The exchange rate of the forint against theSwiss franc, the US dollar and the euro
Sources: ECB, MFB
2,00%2,50%3,00%3,50%4,00%4,50%5,00%5,50%6,00%6,50%7,00%7,50%
265270275280285290295300305310315320
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HUF/EUR (LHS)Central Bank's base rate (RHS)Interest rate expectations on 31th July 2014 (RHS)Interest rate expectations on 30th June 2014 (RHS)Interest rate expectations on 31th May 2014 (RHS)
Chart 5: The HUF/EUR exchange rate, the Central Bank's base rate and market based expectations about the base rate in the future*
* based on BUBOR fixings and 1x4,3x6, 6x9, 9x12forward rate agreements (FRAs)
Sources: ECB, CBH, MFB
1002003004005006007008009001 000
240250260270280290300310320330
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10.2
011
01.2
012
04.2
012
07.2
012
10.2
012
01.2
013
04.2
013
07.2
013
10.2
013
01.2
014
04.2
014
07.2
014
basi
s po
ints
HUF/EUR (LHS)3-month bill yield spread between Hungarian and German treasury bills (RHS)12-month bill yield spread between Hungarian and German treasury bills (RHS)
Chart 6: The HUF/EUR exchange rate,3 and 12-month bill yield spread
Sources: Government Debt Management Agency, Reuters, MFB
99,0%
99,5%
100,0%
100,5%
101,0%
101,5%
102,0%
99,0%
99,5%
100,0%
100,5%
101,0%
101,5%
102,0%
30.0
6.20
14
07.0
7.20
14
14.0
7.20
14
21.0
7.20
14
28.0
7.20
14
Czech koruna Hungarian forint Romanian leu Polish zloty
Sources: ECB, MFB
* 30.06.2014 = 100%
Chart 2: The exchange rates of Central and Eastern European currencies against the euro
strengthening against the euro
40
50
60
70
80
90
100
110
120
130230
240
250
260
270
280
290
300
310
320
01.1
999
01.2
000
01.2
001
01.2
002
01.2
003
01.2
004
01.2
005
01.2
006
01.2
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01.2
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01.2
009
01.2
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01.2
011
01.2
012
01.2
013
01.2
014
inve
rted
sca
le
HUF/EUR (monthly average, LHS)
ESI (RHS)
Chart 4: The HUF/EUR exchange rate and theEconomic Sentiment Index (ESI) in Hungary
Sources: ECB, European Commission, MFB
improving sentiment
Periscope
Periscope August 201411
General government and its financingThis year’s deficit target could still be met despite the figures from the first half-year• In the first six months of 2014 the deficit of the central sub sector (HUF 813.7 billion) amounted to 82.6% of the annual
target, while the balance of the central budget (HUF -965.9 billion) was 0.5% worse than the budgetary target. However, the latter balance exceeded the deficit calculated for the same period of the previous year only by HUF 51.7 billion (Chart 1).
• Between January and June, revenues grew by HUF 429.2 billion compared to the previous years, while expenditure saw a sharp rise of HUF 480.9 billion. The latter was due largely (84.4%) to the increased spendings of budgetary authorities. As far as revenues are concerned, payments by both the population and companies exceeded last year’s level in 2014 (Chart 2 and Table 1).
• In the remaining months, the annual target and the deficit of 2.9% of the GDP will likely be met thanks to the year-end realisation of most of the revenues, the HUF 110 billion freezes announced in July, and the statistical effect of last year’s wage raises in education.
• The yield curve became steeper in July: yields on 3-month discount treasury bills shrank by 55 basis points to 1.68%, while reference yield on 10-year bonds rose by 34 basis points to 4.73%, which is higher than the Romanian level (Charts 3–4).
Table 1: The revenues of the central government and the social security funds by main groups
HUF billion 2013 2014
total income (esti-
mation)
January-
June
% of yearly reve-nues
yearly revenue target
January-
June
% of yearly
revenuetarget
CENTRAL GOVERNMENT 10967.8 4587.6 41.8% 10697.3 5016.8 46.9%
Taxes imposedon corporations 1152.1 461.3 40.0% 1351.7 577.4 42.7%
Corporate income tax 322.5 151.7 47.0% 358.8 181.7 50.6%
Taxes imposed on SMEs 148.5 45.6 30.7% 190.4 53.0 27.8%
Special taxes on banks and branches 148.9 75.3 50.6% 144.0 71.9 49.9%
Taxes imposedon consumption 4055.3 1834.0 45.2% 4316.7 1993.4 46.2%
Value added tax 2809.6 1314.2 46.8% 3014.1 1383.0 45.9%
Excise tax 897.3 411.0 45.8% 931.9 417.0 44.7%
Taxes imposedon households 1654.4 814.9 49.3% 1700.1 862.1 50.7%
Personal income tax 1504.6 740.9 49.2% 1550.0 781.1 50.4%
Pension Fund 3015.2 1507.3 50.0% 2964.6 1545.0 52.1%
Health Care Fund 1847.8 931.8 50.4% 1884.2 965.7 51.3%
Sources: Ministry for National Economy, HCSO, MFB
-25%
0%
25%
50%
75%
100%
125%
150%
175%
-25%
0%
25%
50%
75%
100%
125%
150%
175%
1 2 3 4 5 6 7 8 9 10 11 12
2008
2009
2010
2011
2012
2013
2014
Chart 1: The proportion of cumulated central government budget deficit in ratio of the yearly target
Sources: Ministry for National Economy, HCSO, MFB
-480.9 -443.4 -428.6 -464.3 -516.4 -613.5 -679.4
-629.0 -670.5-640.4
-637.9 -692.6-637.0 -680.1
-1 188.4 -1 144.1 -1 304.7 -965.8 -909.6 -931.7 -940.0
-1 831.5 -1 971.1 -2 145.1 -2 333.9 -2 356.8-2 931.2
-3 337.1-346.3 -322.8
-317.9 -313.9 -416.0-388.5
-346.1
526.1 743.6 879.0 983.2 1 097.8 1 301.6 1 347.41 055.1
1 020.0 924.5 709.4 767.0814.9 862.1
1 445.9 1 338.0 1 430.7 1 528.11 872.9
1 834.0 1 993.4457.1 464.7 351.9 470.3423.4
461.3577.4
-783.0 -713.9 -1 021.9 -907.4 -592.3 -914.2 -965.9
-6 000
-5 000
-4 000
-3 000
-2 000
-1 000
0
1 000
2 000
3 000
4 000
5 000
6 000
2008 2009 2010 2011 2012 2013 2014
Payment of economicorganizationsTaxes in consumption
Payment of households
Central budgetary institutions
Other revenues
Family benefits, socialsubsidiesPayments of central budgetaryinstitutionsTransfers to generalgovernment subsystemsDebt service
Other expenditures
Balance of central budget
Chart 2: Revenues and expenditures of central budgetin January - June period (billion HUF)
value of balance Sources: NGM, HCSO, MFB
1,0%1,5%2,0%2,5%3,0%3,5%4,0%4,5%5,0%5,5%6,0%6,5%
1,0%1,5%2,0%2,5%3,0%3,5%4,0%4,5%5,0%5,5%6,0%6,5%
01.2
014
02.2
014
03.2
014
04.2
014
05.2
014
06.2
014
07.2
014
3-month 6-month 12-month 5-year 10-year CBH base rate
Chart 3: Reference yields on Hungarian government securites
Sources: Government Debt Management Agency, CBH, MFB0
5
10
15
20
25
30
35
1%
2%
3%
4%
5%
6%
7%
01.2
014
02.2
014
03.2
014
04.2
014
05.2
014
06.2
014
07.2
014
poin
t
Hungary Czech Republic Poland Romania VIX index (RHS)
Chart 4: Yields on 10-year government bonds
Sources: Government Debt Management Agency, Reuters, MFB
increasing global risk appetite