The recovery appears to be strengthening
Most data published from the beginning of the year brought encouraging signs that recession should technically have ended in the first quarter of 2010 in Hungary.
Nice surprises on the homefront
Whereas industrial output showed a surprisingly strong rebound in January, owing mostly to inventory rebuilding and improving external demand, retail sales rose unexpectedly from the previous month, most probably due to a considerable gain in real wages. Moreover, non-financial companies increased debts in January for the first time since the beginning of the crisis, signaling that investment growth could turn positive soon and reflecting an increasing need for current asset financing.
Thus, in contrast to our previous expectation that Hungary could be driven out of the recession only by net exports and inventory rebuilding, investments and consumption might also have a slight role – or at least not a negative contribution – to bring about the recovery. In line with this perception, the investment activity of large multinationals’ local subsidiaries has appeared to be intensifying. Yet, despite the fact that job creation has been started by export-oriented companies, unemployment is still on the rise, jumping to a 16-year high in December-February, reducing the likelihood of a fast rebound in private consumption.
Eye on the indicators
Meanwhile purchasing manager indices and other confidence and business indicators reach multi-year highs throughout the world (see graph on right), suggesting that the economic recovery might become more powerful in the short term than earlier thought. In light of PMIs, economic expansion is being boosted by surging output, new orders, export orders and stock-building, whereas the level of employment also looks encouraging. A soaring German PMI and Ifo index have given additional hope to Central European countries, easing fears on the fading effects of new car incentive programmes in Western Europe. There are encouraging signs that many companies are trying to survive the global economic crisis by investing in state of art technologies in order to boost competitiveness. Yet, household consumption remains sluggish.
Don’t break open the champagne yet
However, despite the increasing likelihood of accelerating economic growth in the first part of 2010, we should remain cautious about the overall speed of post-crisis recovery. Business confidence may retreat if the so called exit strategies are implemented by major industrialised countries and the present abundant liquidity flees the market. In addition, job creation continues to be rather weak globally. Yet, as a bottom line, the hope for sustainable economic growth is gradually increasing.