The main source of economic growth in 1999 was the export activity of multi-national companies in Hungary. During the second half of the year, however, domestic industrial sales – practically stagnating for the previous seven years – also produced marked growth.
Another sign indicating the increasing strength of the domestic economy is the expansion of retail trade, the volume of which – after hitting rock bottom in 1997 followed later by a slow recovery – went through quite intensive growth in the second half of 1999. Apart from vehicles, vehicle parts, and fuels; food and light industrial products also played a part in it. This favorable trend has also left its mark on the GDP which grew at a faster and faster pace, reaching 5.9 percent in the fourth quarter.
The present advantegous foreign economic climate enables further, relatively dynamic growth for the economy, which planned public infrastructural development projects may reinforce. At the same time, there remain two factors that can potentially endanger a steady economic boom: inflation and foreign balance. The higher wage demands of the state-financed service sector, the profit interests of service sector multi-national businesses and attempts at easing the agricultural cost-price squeeze can all result in unwelcome inflationary pressures. Another major test the government needs to stand is to make the public accept a real wage increase that is lower than the expected growth of the economy, and to moderate inflationary expectations that can already be felt. It is also difficult to assess at this time the degree of demand-driven inflation caused by a tendency to lower interest rates. Foreign trade balance can only stay at the same level if the further deterioration of Central and Eastern European relations can be halted.
