In the first quarter of 1998 the main economic trends that arose last year further continued. Industrial production was up by 14 per cent as compared to the corresponding period of last year; the growth rate in March surpassed 20 per cent. Although it was exports that invariably played a decisive role in the growth (37 per cent in the first quarter), domestic demand took an ever-increasing uplift. Within domestic sales the rate of intermediate goods increased by 13 per cent, which primarily reflects the pulling effect of exports. A similar growth in sales of investment goods strengthened the role of the domestic market. The demand for consumer goods also moved out of the dead point and it started a slow rise. Within industry it was still engineering that increased output at a great rate (by 1.5 times).

The majority of manufacturing branches also showed remarkable development. Products from the construction industry grew by 39 per cent, wood, paper and printing products by 16 per cent, while 12 per cent more metallurgy and metalworking products were manufactured than in H Q1 of last year. Production within the food industry increased by 1.6 per cent and the output of the chemical industry remained at the same level as last year.

The stock of orders indicate the continuation of industrial upswing. According to new orders dynamic growth can be expected both in exports and in the domestic market. The output of construction in the first quarter increased by 14.4 per cent as compared to the corresponding period of the previous year; the growth rate in March reached 16.6 per cent. Within construction the output of civil engineering increased by almost 40 per cent due to the run-up in the performance of road and bridge constructor corporations. Overground construction developed in line with the average and building installation and completion stayed behind the average. The output of agriculture decreased by 4.7 per cent as compared to the corresponding period of last year.

Procurement data also indicated a decline - the quantity of sold products dropped by 2.5 per cent. This drop was primarily due to the decline in the procurement of pigs for slaughter and poultry products. It should be noted, however, that pig stock started to grow on the basis of the animal census held in April. (HCSO)

Investment

According to preliminary data, investment in the national economy grew by 12 per cent compared to the same period of last year. Growth in manufacturing was well above the average (26 per cent). Developments relating to the restructuring of the electric energy industry, as well as those implemented in the field of transport and communication contributed to the upturn of investment activity. Investments in agriculture, representing a very modest share in total investments, decreased in the first quarter. (HCSO)

Equilibrium

The balance of the current account further improved. The deficit of the first three months reached US$393 million, 84 million less than in the corresponding period of last year. The negative balance in commodity turnover decreased, but the revenues of tourism - producing favourable results already last year - slightly increased.

The external trade turnover dynamically grew - the volume of exports increased by 33 per cent, while that of imports by 28 per cent. It is remarkable that besides the spectacularly developing turnover of industrial free zones, the customs statistical external trade turnover also reached considerable growth. The negative balance of traditional external trade ($960 million) was largely moderated by the positive balance of free zones ($402 million). The negative balance of total turnover represents 10.8 per cent of exports. Last year the same rate reached 15.4 per cent.

The deficit of the budget deficit amounted to 198 billion HUF in the first four months of the year, 51 billion more than at the end of last April. The major part of the increment (44 billion HUF) arose in the central budget, predominantly because of the debt service related to net burden. The deficit of the social security funds increased by more than 10 billion HUF.

At the evaluation of the balance situation of the budget it should be taken into account that this data is nominal, therefore, inflationary impacts are included.

For the statement of government debt and the budget deficit - in harmony with international practice - a rate expressed as a percentage of the annual Gross Domestic Product (GDP) would be helpful. However, this is not available during the year. The nominal growth rate of state debt in the first four months - as compared to the end of the previous year - was lower than the inflationary rate. (HCSO)

Employment

The number of people employed (3.6 million) was slightly more in Q1 than in the same period of last year; 69 per cent of them were employed at corporations with more than ten employees and at budgetary institutions. In this sphere a minimum (0.5 per cent) decrease in staff can be observed. Change in the sectoral structure of employees continued in line with stabilisation of the staff number.

On the dynamically developing territories of economy a strong growth in staff number could be experienced. For instance, the number of employees employed in engineering increased by 11 per cent, while that of employees in the building material industry increased by nine per cent.

Moderate growth characterised the whole of industry. At the same time, employment continued to decline in the majority of construction, agricultural and service branches. Unemployment continued to moderate.

The unemployment rate calculated in accordance with international recommendations reached 8.7 per cent in Q1. The domestic indicator is two percentage points lower than the average in the European Union (EU). The number of registered unemployed decreased in April at a greater extent than earlier, by 21.500 people (4.7 per cent) as compared to March. This decrease could be observed in the capital and in all counties. (HCSO)

Earnings

The average net earnings of employees in March similarly increased to the first two months. In the average of Q1 the gross nominal earnings of full-time employees reached 61.520 HUF, 21.2 per cent more than one year before. This year - diversely from the previous year, but similarly to former years - the increase in net earnings was, to a slight extent, less than that of gross earnings. In the January-March period, average net earnings grew by 20.8 per cent as compared to the corresponding period of last year. Both the gross and the net earnings increased at a similar rate in the business and the budgetary sphere.

An essential difference could be observed in the increase by staff categories: the net earnings of white-collar workers increased by 22.7 per cent and that of blue-collar workers by 18.9 per cent, as compared to the previous year.

The real value of net earnings surpassed the level of last year by 3.2 per cent in the whole of the economy, which is less than in the corresponding period of last year. (HCSO)

Prices

Figures of Q1 - in case of consumer prices those of the first four months - indicate a lower price increase in industry, construction and consumption than in the same period last year. Forint prices in external trade increased at the same rate as last year, while the producer-procurement price level of agriculture was higher than in the first quarter of 1997.

Procurement prices in the first three months surpassed the level of the corresponding period of last year by 26.3 per cent, owing to a 34.8 per cent price growth for live animals and animal products. The price level of plant production and horticultural products, playing a minor role in procurement at this period, was lower by 1.6 per cent compared to the year before.

Industrial producer prices grew by 14.3 per cent contrary to the 22 per cent growth in the same period last year. The drop in the growth rate surpassed ten percentage points at domestic sales prices (instead of 24.1 per cent only 13.6 per cent). The price index of construction-installation activity reached 115.1 per cent, almost six percentage points less than last year.

Consumer prices went up by 16.8 per cent in the January-April period, by two percentage points less than last year. The forint price level of exports surpassed the level of last year by 15 per cent and that of imports by 14 per cent, mainly as a consequence of forint devaluation, the foreign exchange prices hardly changed. (HCSO)

Fourteen per cent inflation by the year's end

Due to a fiscal policy showing certain signs of loosening up and a faster-than-expected nominal wage outflow, the central bank expects inflation to reach the upper limit of the targeted 13-14 per cent by the end of the year. In a briefing about the annual report of the central bank, György Surányi, President of the Hungarian National Bank, repeatedly called attention to the fact that the reduction of the undoubtedly high inflation could only be carried out by the effective assistance of fiscal and wage policies.

In connection with this, he said that from among the indispensable conditions for reaching the expected inflation rate of 13-14 per cent, in all probability many will remain unfulfilled. Although the budget deficit is developing as planned, the primary surplus, which is important because of its demand-cutting effect, will presumably be only one and half per cent on an annual level instead of the planned two per cent. The nominal wage increase will also exceed forecasts: based on the first six months' data. Even growth of 18 per cent is conceivable, although 16 per cent was set in the programme according to Mr Surányi. It is already a fact that Hungary began this year from a higher-than-planned inflation level. Therefore, the central bank will not modify its targeted inflation rate of 13-14 per cent, but now it only regards as accessible by December the upper limit of the range (on a year-year basis). Following 15.8 per cent in May, the monetary authority expects a consumer price index (CPI) of 14.5-15.0 per cent by June.

The central bank is counting on economic growth of about five per cent in the forthcoming two years. Along with this a 4.7-4.9 per cent budget deficit and $1.0-1.4 billion current account deficit is expected. In the first quarter, according to the central bank's own estimation GDP was up five per cent; personal consumption was up 2.8-3 per cent on the same period of last year. (HE)

Subsistence level rose more than prices

Last year the national average subsistence level per head came to HUF 18.600 per month, which is up 22.4 per cent on HUF 15.200 in 1996. According to an analysis entitled 'Subsistence level 1997' of the Central Statistical Office, the subsistence level rose more than the CPI. The primary cause is that from among the expenses which represent a significant weight in the subsistence level - and which cannot be influenced or only to a small extent by families - the expenses connected to household energy rose by 28.4 per cent and public transport, telecommunications and educational expenses also rose more than the average. The subsistence level values per head fell in the range of HUF 14.600 to 23.700 in the various household types. The monthly subsistence level calculated for a household of two adults of active age and two children came to HUF 68.800 in 1997. (HE)