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2000. 14. szám (plusz)/FORECASTS . Global challenges

Hungary’s future is more and more defined by globalization and within that the development prospects of the European Union. The significance of national markets is receding and an economic system surpassing traditional political systems, national boundaries and competences is in the making.

In an increasingly global world economy emerging markets develop a dual structure. On the one hand, there is a local economic sector, tightly linked to internal processes, and sensitive to outside market trends, as well as to internal and external balance. On the other hand, there is a global economic sector, the development of which is to a large degree determined by the business policies of transnational companies.

Prospects for the world economy are promising for the near future. The main economic engine of these days, the United States will continue to grow at a very high rate – reaching, according to experts, as much as 3.8 percent this year. Central and Eastern Europe is also expecting an economic boom and, according to forecasts, starting the year 2000, developing and emerging economies will start to grow again.

This favorable external economic climate also enables relatively dynamic GDP-growth in Hungary – something that can be further bolstered by infrastructural developments and the investment and development plans of the biggest multi-national businesses already present in the country. Of the companies surveyed, 64 percent plan to launch some kind of technological investment during the next six months.

Economic balance is in a rather precarious state and can potentially be shaken by external or internal processes. On the one hand, there are several signs foreshadowing quite a strong inflationary pressure for 2000; on the other hand, the steadiness of economic growth can be jeopardized by the uncertainties of external balance. The growing foreign trade deficit is a source of hazard in itself, further intensified by the potential outflow of income connected to the country’s net foreign debt. The approximately 2 billion USD annual balance of payments deficit can be safely financed by foreign working capital and portfolio investments. However, the foreign trade balance would need a stable improvement of 1.0-1.5 billion USD in the next 3-4 years.

The economic boom that started in the second half of 1999 will carry on into 2000 and the years following it – GDP growth is expected to reach 4.5-5.0 percent this year. A significant portion of that will still be coming from multi-national companies present in the country. Thus GNI (indicating the performance of the national economy) will grow 3.0-3.5 percent at best. The rate of inflation will continue to diminish – although at a slower pace – and is expected around 7.5-8.0 percent in 2000. External balance is likely to be the same as in 1999. Prospects of the national economy are generally seen in a favorable light by foreigners – well demonstrated by the fact that in spite of the sudden lowering of interest rates in January the Forint is still positioned close to the upper side of the intervention band – and so the expected 1.8-2.0 billion USD deficit of the current accounts balance can be financed by a further influx of working capital and portfolio investments.

Net earned incomes are likely to grow 12-14 percent at current prices. With and inflation rate of 8 percent this amounts to a 2.5-3.5 real wage growth – a rate that will basically characterize the next couple of years as well. Household economics and consumption are less and less determined by wage-related incomes, as wages today constitute only sligthly more than 40 percent of public earnings.

Because of the growing role of capital income, the faster growth of better payed sectors and the discrepant ability of various social groups for self-representation, income differences are likely to stay with us not only in the next couple of years but in the long term as well. The pattern of income redistribution in the near future will change from favoring high-income groups at the cost of the lowest ones, toward increasing the burdens of middle-income groups.

Assuming that economic growth will continue, the positive employment tendencies that started in 1999 are likely to last in 2000 – improvement can be expected both from the demand and the supply side. Economic growth can absorb about 2 percent more new labor force, its source mainly being the inactive population. In accordance with last year’s trends the number of employed is likely to grow by 110-120 thousand with a 20-26 thousand drop in the number of unemployed.

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