World Economic Outlook and the Situation of the Hungarian Economy 2007

In the last few months of 2007 world economic outlook became less favorable and imply far bigger uncertainty than even a few months ago. Growth risks increase: volatility of financial markets haven't decreased, whereas decline in inter-bank trade and short term interest rates implies shaking of confidence. Download Full Press Release 2007 Q4

Economic Tendency Survey, July 2007

Results of the July 2007 Economic Tendency Survey show that, the sentiment of the Hungarian manufacturing firms concerning their present situation and future prospects, affected by the economic trends, financial factors and also by subjective elements, have improved since April.

From among factors influencing processes in the real economic sphere, the most important ones have stabilised or perhaps showed a positive shift during the last few months: output increased, there were fewer quotations of a lack of demand, capacity utilization remained relatively high, and the stock of orders have remained at the relatively high level of spring. However, a negative change has been observed as well, i.e. the deterioration in the dynamism of sales projections.

Based on the general perception of companies and economic trends, we can look forward to the rest of the year with moderate confidence: the relatively favourable trends in manufacturing industry are expected to continue, though at a slightly slower rate.

Business services price observation

In the world economy services account for more than 75% of the value added (measured by GDP). Within the services, the share of business services varies widely. In the developed countries of the OECD, about one third of the total value-added originates from business services, as a result of some 5 percentage points rise in the last ten years. In Hungary, its significance is less prominent: it has recently reached the level corresponding to one fourth of total income, with an increase of 3 percentage points in the last decade. The increasing economic importance of business services implies that tracking the price trends within this sector is becoming more and more relevant.

The Hungarian Central Statistical Office (the originating party) concluded that our execution of this project was "highly satisfactory" which is the highest qualification possible and which no other country among several European Union member states managed to achieve to date.

Before 2006 there was no collecting on statistical data related to price trends of business services, when the Hungarian Central Statistical Office issued a tender financed by the European Union for developing an internationally harmonised system for output price trend observation in specified areas of the service sector. Kopint-Datorg Ltd won the international public procurement tender.

Taking into consideration international observations, the special features of the Hungarian business services sector, as well as the data sources already available, working groups of Kopint-Datorg and Kopint-Tárki have:

- elaborated a price-efficient method for calculating the price indices of the 34 service modules specified,

- organised a preliminary data collection on the second and third quarters of 2006, and

- drew up a proposal on the preconditions of incorporating the task into the regular data collecting activity of the Hungarian Central Statistical Office.

The project was launched in February 2006, and ended at the end of May 2007. As a result, by October 2006, the most important pieces of information concerning the data collection and the methodology guides have already been made available for the potential data providers and users on the website of the Hungarian Central Statistical Office; and in March 2007, the regular data collecting activity could also be started.

The complete liberalization of the electricity market

Our Working Paper examining the consequences of the complete liberalization of the domestic electricity market on competition policy, energy policy and price- and government assistance policy concludes that experience of the 2003 partial market opening can not be entirely applied to the full liberalization to be implemented in the near future.

This is due to the fact that 75% of the Hungarian energy production capacity is engaged by the Hungarian Power Companies Ltd (Magyar VIllamos Művek: MVM or HPC) through long-term purchase agreements. Currently HPC decides how much electricity it makes available in the free market, thus it has the power to set the prices. The present system totally lacks transparency, as we have no information on the content of the electricity purchase agreements restricting free trade of electricity on the Hungarian market.

The complete opening of the market expected in 2008 will not necessarily result in lower prices, but it would definitely lead to a higher level of transparency. The rise in prices can be tackled by expansion of supply that can come partly from imports and partly from additional domestic investments. However, as long as the state ensures power stations to generate substantial profits free from risk by means of the long-term purchase agreements, nothing will motivate them to increase their efficiency and carry out relevant investments.

In order to ensure safe electricity supply, regional electricity cooperation has to be strengthened, best means of which would be the establishment of a regional electricity stock exchange. By now it has been proven in several sectors, for example in air transport industry, there is not much sense in insisting on maintaining national air carriers, nor due to economic, neither to safety considerations.