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World economies

August 18, 2012



OIL prices will be higher but GDP will grow more slowly, according to the Russian Economic Development Ministry’s updated 2012-2015 socio-economic forecasts. The main changes to the forecast are for the current year: The average oil price has been raised to $115 from $110 a barrel in 2012. But oil is no longer the driver of economic growth — the GDP growth forecast has been lowered 0.3 per cent to 3.4 per cent from 3.7 per cent, and industrial output growth to 3.1 per cent from 3.6 per cent, due to the declining forecast for growth in investment demand to 6.6 per cent from 7.8 per cent and a higher estimate for import growth in real terms. Expectations for consumption rise to 6.3 per cent from 5.5 per cent in 2012, making the overall forecast more “consumer-oriented.”

The higher oil price forecast this year is the main reason for the now stronger rouble forecast, which is expected to average at 29.2 roubles/$1 in 2012, compared with a previous forecast of 31.1 roubles. GDP growth of 4.4 per cent is expected in 2013 and 4.7 per cent in 2015. Industrial output could rise 3.4 per cent in 2013 and 4.2 per cent in 2015. The inflation forecasts are unchanged at 5-6 per cent in 2012, 4.5-5.5 per cent in 2013, and 4-5 per cent in 2015. But the forecast for investment demand in 2012 has been lowered “largely due to the base effect and because investment demand is recovering fairly shakily for now. There are risks that investment growth will be lower than 6.6 per cent in 2012. Investment growth should be above seven per cent again in 2014-2015.

The import forecast in nominal terms is raised to $370 billion from $369 billion in 2012, lowered to $407 billion from $413 billion in 2013. Import growth in real terms is raised to 12.5 per cent from 11.4 per cent for 2012 and lowered to 8.1 per cent from 9.7 per cent in 2013. The export forecast is raised to $558 billion from $513 billion in 2012, to $526 billion from $515 in 2013.Exports will grow more slowly than imports in real terms: by 2.3 per cent in 2012 and 2.8 per cent in 2013. The Economic Ministry expects a current account surplus of $83 billion in 2012 and $23 billion in 2013 but a deficit of $9 billion in 2015.

The Russian Ministry for Economic Development has evaluated that oil prices may drop to $80 per barrel in 2012-2013. The financial crisis of the eurozone would continue in 2013. The GDP of the eurozone may drop to 0.6 per cent in 2012 and one per cent in 2013. The world economic growth rate in 2013 will drop to 2.5 per cent. Russia’s economic growth rate in 2013 may drop to 0.5 to 2.1 per cent, then reach 3 to 3.7 per cent annually. The dollar rate in 2013 will total 37.2 rubles, inflation will reach 8.6 per cent. Consumer prices grew at the fastest rate this year in July, accelerating 5.6 per cent from 4.3 per cent the previous month, near the top end of the central bank’s target range of five per cent to six per cent.

Former Russian Finance Minister believes a 3-4 per cent decline in the country’s economy in 2013 is very likely even as the authorities expect GDP to increase next year by 3.8 per cent. However, a 3-4 per cent decrease in GDP would not be “critical” for the cyclical development of the economy. A cyclical crisis should not be feared as no amount of funds would avert it and the use of funds would become less effective. The peak of the crisis would start after GDP declines by over 3-4 per cent. A latest report by Moody’s Investors Service reveals that the Russian economy could contract five per cent over the next 10 to 12 months and the ruble could depreciate 30 per cent if the euro-zone crisis intensifies.

Meanwhile, Russia’s economic expansion eased in the second quarter to the slowest pace in a year as weaker growth in China and Europe’s debt crisis curbed demand for its commodities exports. GDP rose four per cent from a year earlier, the weakest pace since the same quarter of 2011 and down from 4.9 per cent in the January-March period, according to the Federal Statistics Service in Moscow. A slowdown further in the second half is certainly on the cards. The contribution of foreign sales to economic growth looks less certain with exports hit by faltering demand from the EU.


THE Polish government may cut its 2013 economic-growth forecast to as low as 1.5percent due to the euro region’s contraction, according to an economic adviser to Prime Minister. While Poland faces no risk of recession, the government may need to “adjust” its forecast for growth next year to 1.5-2 per cent, down from a preliminary estimate of 2.9 per cent, as the currency bloc’s debt crisis intensifies and recession spreads across the euro countries. The government approved a draft 2013 budget in June that assumed growth will accelerate to 2.9 per cent from 2.5 per cent this year. An expansion of 1.5 per cent next year would be Poland’s slowest since 2001. The economy grew 4.3 per cent in 2011 and 3.5 percent in the first quarter of 2012 from a year earlier. It will be the fastest-growing EU economy this year, according to the European Commission May forecast.

The government should revise next year’s growth forecast to about two per cent. Poland’s finance ministry will likely cut its forecast of the country’s economic growth for 2013 because of prolonged financial turmoil in the euro zone. The country’s GDP will probably expand 2-2.5 per cent in 2013, slower than its current official estimate of 2.9 per cent. The official revision will likely come at the end of August. Slower growth makes fiscal policy more difficult and could change investors’ positive attitude toward Poland. Continuous hints from the government about a significant slowdown may eventually convince the central bank to cut rates. In May, Poland’s central bank raised its main rate by a quarter-point to 4.75 per cent in the face of inflation that has exceeded its 2.5 per cent ceiling since October 2010.

Poland’s inflation eased by more than expected in July as prices for food, fuel and clothing fell, raising pressure on the central bank to consider interest rate cuts sooner than in 2013. Statistics office data showed consumer inflation CPI eased to 4.0 per cent year-on-year in July from 4.3 per cent the previous month. Analysts had forecast price growth would slow to 4.2 per cent. Price growth has been above the central bank’s target of 2.5 per cent level for most of the last five years despite a tight policy stance that even prompted a surprise rate hike in May. The most important fact is that inflation is still at 4.0 per cent, which should keep the MPC from moving into dovish rhetoric.

The European Bank for Reconstruction and Development has revised upwards its forecast of economic growth in Poland in 2012 but cut substantially its estimate for next year, due to the crisis in the eurozone. The bank notes that the impact of the euro area crisis on emerging Europe is spreading further east, and will continue to negatively affect economies in the transition region that are closely intertwined with those of the eurozone. Even so, growth in Poland is now projected to be somewhat better this year than previously forecast, at 2.9 per cent. However, in 2013 GDP growth is expected to decelerate more sharply to 2.4 per cent.

Poland’s GDP will likely grow by 2.8 per cent in FY 2012 and by 2.6 per cent in 2013, according to latest forecasts by the Institute for Market Economy Research IBnGR. In its previous forecasts the economic think tank pointed to three per cent GDP growth in 2012 and 3.2 per cent in 2013. Poland’s economy grew three percent year-on-year in the 2nd quarter of 2012. In the 3rd quarter the GDP is likely to grow 2.5 per cent, in the 4th quarter 2.3 per cent, and in the entire year 2.8 per cent, according to the institute. Both the central bank and the Finance Ministry have recently admitted that Poland is in for an economic slowdown. Still, governor of the National Bank of Poland (NBP) recently stressed that Poland’s economy continues to grow faster than the rest of Europe.


HUNGARY has been one of the more advanced market economies amongst the new EU member states in Central and Eastern Europe, with the private sector accounting for approximately 80 per cent of GDP. The economy has been extensively liberalised through privatisation, foreign investment and the introduction of comprehensive commercial laws. Further reforms are planned. Key reasons why foreign investors choose Hungary are the quality of its workforce, its excellent infrastructure, its central geographic location and relatively low costs. In recent years, Hungary’s heavy taxation regime and the absence of essential administrative reforms have significantly impacted on its business environment, although it still remains a major recipient of foreign direct investment.

The onset of the global economic crisis compounded Hungary’s economic problems. In October 2008, Hungary had to turn to international financial institutions for help to restore investors’ confidence in the country’s economy. In 2009, Hungary’s economy contracted sharply by 6.3 per cent. A jump in exports initiated a recovery in 2010, and by 2011 approximately 1.8 per cent growth had been achieved. Unemployment remains high, at more than 11 per cent in 2011. In late 2011, major ratings agencies Moody’s and Standard and Poor’s downgraded Hungary’s debt to “junk” status, citing high levels of debt and weak prospects for growth. Ongoing economic weakness in the eurozone is likely to further constrain Hungary’s economic growth in 2012.

The outlook of the Hungarian economy does not seem to be very bright for 2012-2013. The present economic policy has caused serious confidence crisis among economic players and potential investors. Another economic recession is forecast in Hungary for 2012, a decline by 1.5 per cent for GDP is expected, only the trade balance will improve. There will be imposed budget restrictions, inflation will accelerate. Economic situation in year 2013 will depend on the success of the new convergence programme, on the agreement with EU-IMF and on its implementation. If so, in 2013 interest rates will decrease, the exchange rate will be more stable, sovereign debt will diminish and as a result of these all economic growth might start again.

A latest report reveals a worsening outlook for consumer price inflation. Whereas the March report indicated that the central bank’s three per cent mid-term inflation target could be achieved in 2013, the latest projections show above-target inflation both this year and next, with the indicator nearing target at the end of 2013. Analysts noted consumer prices fell 0.1pc in Hungary in July, but they still projected average annual inflation to rise to 5.5 per cent for the full year from 3.9 per cent in 2011.In June, consumer prices rose 0.1 per cent a month and 5.6 per cent year-on-year, accelerating from a 5.3pc increase in May Seasonal food prices make the estimates uncertain. Analysts expected continued upward pressure from food prices but he said that the exchange rate and crude oil prices could affect the index either way.The dispute between the government and the EU/IMF over Hungary’s central bank law appears close to a resolution, removing an obstacle to the beginning of formal talks on the credit line. Hungary is seeking a €15 billion credit line from the IMF. Hungary joined the Czech Republic in recession as Romania returned to growth after two consecutive quarters of decline. Hungary resumed talks with the IMF and the European Union in July after a seven-month delay as it seeks about 15 billion euros ($18.2 billion) to reduce financing costs and protect against contagion from the euro area’s debt crisis.

Hungary’s economy entered its second recession in four years before resumption in talks over an International Monetary Fund-led bailout loan. The economy contracted a preliminary 0.2 percent in the second quarter from the previous three-month period, when it shrank a revised 1 percent, according to the Budapest-based statistics office. Gross domestic product fell 1.2 per cent from a year earlier. IMF and EU officials are focusing on untangling policies that contributed to the downgrade of Hungary’s credit to junk as recessions in the euro region sap demand for the country’s exports. The forint, which fell 15 per cent in the second half of last year, the most in the world, has gained 13 per cent in 2012 as investors speculate that Hungary will obtain an IMF loan.