In 1999 the conditions of growth for the Hungarian economy differ from what was previously assumed in several respects. Beside the dynamic growth of the economy even by international comparison and decreasing inflation, problems with the equilibrium, already appearing last year, have been intensified.
International trends did not have much effect on the sales generated by industrial customs free areas, which give 40 of the country’s total export, as the markets of the few large multinationals have been secured from the start. Although the quick upswing of the customs free areas’ export temporarily stabilized the foreign trade deficit around 2 billion dollars, however, in 1998 the already total deficit started to increase and the trend continued in 1999. Apart from that problems were mainly reported in the agricultural sector, whose profitability decreased considerably last year.
As a result of the slower paced growth of demand, this year the GDP’s increase will be more modest according to Ecostat, if everything goes well it will be around 4 percent, which is still outstanding by European comparison. However, the actually distributable income, the GNI, will grow considerably slower and may increase by 2.5 percent at the most. Although withdrawal of the returns on capital invested in Hungary was on a substantially lower scale than last year, this still presents a serious uncertainty, as it is a question which is decided by the heads of a few large corporations.
1.5 to 2 billion dollars of the current account’s expected deficit could be financed by direct investment and 1 to 1.5 billion dollars by portfolio investment without increasing the debt. The current means seem to be suitable for handling the deficit both over the short and the medium run, however, the high ratio of long term deficit is likely to force the country into permanent stagnation. Therefore, this balance should be squeezed down to 1.5 billion dollars. The main road to that does not lead through further budget cuts, but rather it can be achieved by strengthening international competitiveness and developing appropriate domestic production and consumption ratios.
The serious decline of the budgetary trend characterizing the first six months halted in July, yet it is still likely that the deficit will exceed the planned amount over the whole year. However, the it is not bigger than the deficit typical of the most developed countries in the beginning of the nineties and does not require special intervention. –
