Lately a fair amount of good news is coming from Hungary on the economic front. The GDP growth, the public debt, the current account surplus, and the exchange rate of the national currency, the forint all performed better than previously expected. Is this a real turnaround or previous estimations and opinions about Hungary were just way too pessimistic?
On January 17, 2012, the Eastern Approaches (the editorial blog of The Economist) reported the following while the forint traded at 313 ft/euro:
But Société Générale is already advising investors to sell forints, predicting that the currency may slide to as low as 325 against the euro. (It briefly hit 324 earlier this month.)
On January 23, 2012 Société Générale stayed pessimistic even though the forint was near 300 ft/euro at this time, they urged investors to sell forints as quickly as possible.
Today, on February 17th, the forint right now is trading under 290 ft/euro, which is a good deal stronger than its value at the time of the above warnings. The forint would need to weaken 3.4% to be at 300 again, and it would need to weaken more than 12% to “slide to as low as 325 against the euro.” as SG warned. A remarkable gain especially considering the central Bank’s decision to keep rates steady at 7% and avoiding further rate hikes , which would have presumably strengthened the forint even more.
According to latest data, Hungary’s public debt decreased by the end of 2011 to 80.3% of GDP . Down from 81.3% a year ago, but more interestingly, fresh data shows that the debt record was reached at 85.2% in Q2 2010, (under the Bajnai government). You can read the full report about the latest GDP to debt figures here.
In 2012 January, the debt figures continued to impress. These latest numbers cannot be compared to the GDP yet, but the gross public debt decreased significantly in the first month of 2012 by HUF 430 billion according to official ÁKK statistics. Total Public debt was 21,426.1 billion in November 20,955.5 billion in December and only 20,526.7 billion in January. ÁKK’s data is always calculated for the last day of the relevant month.
The Wall Street Journal reported on the latest Hungarian GDP figures, saying “Hungary 4Q GDP Surprisingly High”. The fourth quarter growth was 1.4% on the year vs 0.8% forecast, while the growth during the full year 1.7% unadjusted. Better than expected numbers in construction helped the GDP in Q4.
The surplus of the current account which is another important factor for the Hungarian economy hit some good numbers in 2011. Although the figures for the full year are not available yet, 2011 Q2 posted the largest quarterly current account surplus on record for Hungary, $1 billion. While the surplus is not that large in absolute terms, what makes it significant is the fact that Hungary posted huge current account deficits every year from 1993 to 2008 and now it seems that the country could reliably stay in surplus for 2011.
While the news is good, I am of the opinion that a lot of the problems with the near collapse of the forint were of the government’s own making. A lot of the tough talking rhetoric about the IMF simply panicked foreign investors. The nationalisation of the private pillar of the pension funds already made them jumpy and the conforntational talk amplified this.
The partial recovery in the forint has been in part as a result of the government backtracking from the confrontational strategy. It has also been as a result of the markets temporary boost in overall confidence due to a belief that Greece would be bailed out.
The problem with this is that things in Greece don’t look good, so the markets could quite easily end up in a state of mass panic again. I don’t know if Orban is sincere about trying to deal with the IMF. If not and if this is a gamble I think it is quite a reckless one.
So far as I can see the pension fund nationalisation was a short term gamble to plug the gap in the state finances, done in the belief that the international markets would recover quickly from the crisis and that the Hungarian economy would also bounce back. If the international situation had improved drastically in the last year it probably would have been looked at as a stroke of brilliance. Unfortunately the international situation has worsened and the gamble has not paid off.
When it comes to dealing with the IMF I fear that this might be a similar short term effort to postpone decisions in the hope that economic conditions improve so that there is money there to pay the bills later. In particular I am concerned that the government thinks that it can borrow money on the bond markets and thereby not need an IMF loan. I’m doubtful about this as I think that the recent successes in the bond markets are as much to do with the short term belief in January that Greece was out of the woods (learly it isn’t).
The moral of the story, if there is one, is that it is unwise to become dependant on borrowing to fund your state expenditure. The main bright spot for Hungary is that, unlike Greece, it is not part of the Euro. If it had been just think of what the situation would be like now….