Quarterly Economic Report
17, December 2014
Press release
Forecasts predict a global growth rate of around 3%, and next year the revival will
be weaker than expected earlier, hence world trade dynamics is significantly slower
than the long-time average. The current geopolitical tensions, the potential financial
market consequences of the most likely monetary tightening by the FED, and the
declining expectations all pose a risk to growth. The declining prices of raw
material, and the diving of the oil price all point in the same direction: market
players do not count with a significant strengthening of demand or growth. When
we finish our report, the exchange rate of the Ruble is skydiving, and the ripple
effects are hard to discern yet. The escalation of the crisis of the Russian economy
will obviously have an impact on the East-Central European economies, among
them Hungary as well, but our report does not discuss these effects in detail.
The leading developed economies of the world tread different growth trajectories:
while the recovery in the US is standing on firmer ground, in Japan and in the Euro
zone the recovery is very weak, the outlook is bleaker and the expectations are
uncertain despite expansive monetary politics. If we look at the emerging countries,
such as China that is fuelling the world’s recovery, a slower growth rate (hardly
above 7%) is to be expected, while Russia is threatened by a financial havoc and
recession.
The recovery of the euro zone from the crisis is slower than in the case of other
developed countries and the economies are still more fragile than previously
expected. In the EU-18 average we expect a GDP growth of 0.7% this year, which
will speed up to at most 1% next year. This is primarily due to businesses’
unwillingness to invest. Investment activity since the crisis has recovered slowly
everywhere, but in the euro zone, the investment mood is even bleaker than
elsewhere despite the favorable monetary environment and the supporting policy of
the ECB.
In 2014, a GDP growth of 1.3% can be expected in terms of the EU-28, which next
year might speed up a bit to 1.5%, because the growth rate is more dynamic in the
countries outside the euro zone.
Inflation remains low in the euro zone - 0.4% this year in a yearly average-, while
next year we expect a somewhat higher rate of 0.7%, which is way lower than what
is desired by the ECB. Due to the uncertain consumer and business moods, high
unemployment, and the expectations of further declining prices, consumers do not
take advantage of the low prices and low interest rates and do not expand their
consumption, although in most countries wages show an increasing trend as well.
New EU member states will probably achieve a growth rate of 3% on average this
year and the next. It is still the export and the investments that fuel growth, while
from 2015, the newly available sources of the structural and cohesion funds will
give an additional impetus to the economies.
The majority of the new member states are forced to continue the structural
reforms, and the sustainability of the pension system poses a particularly serious
challenge.
KOPINT-TÁRKI Konjunktúrakutató Intézet Zrt.
Quarterly Economic Report
17, December 2014
Meanwhile the threat of deflation is looming ahead in the region, especially given
that in Poland – in the biggest economy – the consumer price index per year was
negative in three consecutive months. The drastic decline of the price of raw
materials can trigger a new deflation spiral in the region, and since in the majority
of the member states it counts as imported inflation, the scope of action for the
monetary banks is limited. Exchange rates this year fluctuated downwards on
several occasions, and next year we expect similar trends.
The Hungarian economy started to take off in the second half of 2013 - it peaked in
the second quarter of 2014 (with an expansion of 3.9%, and was somewhat weaker
in the third quarter. We reduced our forecast for this year to 3.4% (from the 3.5%
that we predicted in the autumn), but this rate is still one of the highest both within
the EU and in the region.
As far as the relatively fast growth of the past 5-6 quarters is concerned, it is
important to point out that it had a balanced structure both in the sides of
production and of expenditure. In the Expenditure side private consumption started
to take off (though far behind the net increase of real wages): the consumption of
the households in 2014 will probably expand by 1.6%. It is the investments that
drive growth (with an increase of 15%) and not only the public procurements.
Manufacturing investments in 2014 will presumably grow at a rate of around 20%
on a yearly basis.
The 2015 outlook depends on several factors. On the one hand, the allocated sums
of the European funds will decrease, which means that the rate of investments will
be around 5% (after the two-digit growth this year). Business dynamics after the
second quarter’s peak started to slow down as reflected by the third quarter GDP
data and the more nuanced monthly data in the forth quarter.
In 2015 household consumption – the most important element of the expenditure
side of the GDP – is facing several challenges. In 2014 households demonstrated a
relatively small willingness to consume (particularly if we compare them to the
increase of the wages) and a high level of precaution. The most important factor of
uncertainty is how households will react to the implementation of the foreign
currency loan package prepared by the government: will the monthly payments,
fixed at a high rate, but kept stable, encourage a braver consumer behavior or
cause further savings? This risk is aggravated by the irrational governmental
measure of the Sunday closure of shops, because it will undoubtedly impede the
growth of consumption, even if its degree cannot be measured yet. Due to the risks
all pointing downward, we reduced our forecast for the Hungarian economic growth
of 2015 from 2.5% to 2.3%.
KOPINT-TÁRKI Konjunktúrakutató Intézet Zrt.