PowerPoint bemutat

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Political and Economic Challenges and Responses
Dr. András Vértes Chairman GKI Economic Research
Co.
October 2009.
GKI Zrt., www.gki.hu
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GKI Zrt., www.gki.hu
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Growth in selected countries and regions,
2000-2010(preceding year 100)
GKI Zrt., www.gki.hu
Source Eurostat, GKI
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Main challenges

• 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

GKI Zrt., www.gki.hu
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Hungarian Political Roadmap

• 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.

GKI Zrt., www.gki.hu
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Good Chance for FIDESZ

• Likely the FIDESZ will win next elections.
• Unclear economic policy and populistic
  criticism.
• Double speech bought voters.
• Some confrontative and EU-sceptic elements in
  the
• policy.
• But at the end they probably will maintain the
  economic equilibrium.

GKI Zrt., www.gki.hu
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General government deficit and public debt in
the G-20 group, 2000-2014(as a percentage of
GDP)
Source IMF
GKI Zrt., www.gki.hu
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General government deficit in selected EU
countries, 2008-2010 (in per cent of GDP)
GKI Zrt., www.gki.hu
Source European Commission (April, 2009), GKI
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Public debt of selected EU countries,
2008-2010(per cent of GDP)
GKI Zrt., www.gki.hu
Source European Commission (April, 2009), GKI
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Hungarian 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
GKI Zrt., www.gki.hu
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Speeding up Structural Changes
Expenditure and revenue part as well Pension
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
GKI Zrt., www.gki.hu
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Revenue in Recession

• 2009 2010
• GDP 6,5 stagnation
• Weak 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

GKI Zrt., www.gki.hu
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Share of qualified assets in banks, 2006-2009
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Source Hungarian Financial Supervisory Authority
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Real 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

GKI Zrt., www.gki.hu
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The exchange rate of Central Europiean currencies
against the euro, 2008-2009 (31 December 2007
100)
Source IMF
GKI Zrt., www.gki.hu
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Growth 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

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Thank you for you attention
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IMF-EU package
Helped in increasing foreign reserves,
refinancing foreign debt, keeping up to the
surface t-bond market. But no need further!
GKI Zrt., www.gki.hu
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GDP growth of selected EU countries, 2008-2010
Source European Commission, IMF, GKI
GKI Zrt., www.gki.hu
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General government deficit and external financing
requirement in per cent of GDP, 2000-2010
GKI Zrt., www.gki.hu
SourceCSO, National Bank of Hungary, GKI
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GDP growth of Central European EU member
countries, 2000-2010 (1999 100)
GKI Zrt., www.gki.hu
Source Eurostat, GKI
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Reference rates, 2006-2009
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Source National Bank of Hungary
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General government balance in per cent of the
GDP, 2006-2010
Source Ministry of Finance, GKI
GKI Zrt., www.gki.hu