MONTHLY MONITOR. October. The Nobel Prize in Economics has been awarded

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1 292 MONTHLY MONITOR October 2016 The Nobel Prize in Economics has been awarded Based on data received in October, the inflation rate slightly moved away from the 0% level. At the same time, industrial performance was outstanding in August, and the decline of construction industry also moderated. Wages continued to rise dynamically. Since the Brexit referendum held in June, the exchange rate of the GBP got significantly weaker against the world's leading currencies. Apart from leaving the EU, the UK's significant current account deficit accumulating during recent years also contributed to this. Industrial performance exceeded that of the previous year by 11.1%. Besides the calendar-day effect (in August this year there were three more working days than last year), the significant expansion was also due to the different scheduling of summer shutdowns as compared to last year. The performance of the construction industry is still behind last year's performance, but the rate of reduction is lower than in the previous months, currently it is 9%. Favourable processes continued on the labour market: the unemployment rate continued to fall (it is only 5% now), while wages are still increasing dynamically: net real wages were 8.6% higher than a year before. Due to the higher incomes available for employees, retail sales were able to expand. At the same time, labour shortage is a problem in an increasing number of sectors. In September, the inflation rate was at 0.6%, so following the deflation in the previous months, a slight price increase occurred in economy. Companies' net credit expanded again in August: total net borrowing (seasonally adjusted) amounted to HUF 62.6 billion. SZIGMA indicators Forecast SZIGMA CI Source: Századvég SZIGMA LEAD Forecast (9 September 2016) 2016 GDP volume change (%) 2.1 Inflation (annual average, %) 0.1 Gross wages 6.0 (annual change, %) EUR/HUF 312 HUF yield curve (%) Aug 13 Sept 17 Oct Source: Datastream

2 Economic overview External environment The exchange rate of the GBP sank to an unprecedented low level. In the middle of October, the exchange rate of the GBP sank to an unprecedented low level against the weighted currency basket of the UK's main trading partners, so on the basis of the currency index prepared by the UK's central bank, the pound sterling had depreciated by 15% since the Brexit referendum held on 23 June. The weakening of the GBP registered in October was also very much due to the announcement made by Theresa May, according to which the British government finds it more important to have an independent migration policy than to have unconditional access to the European common markets, which projects a greater economic sacrifice than expected upon leaving the EU. Besides the increasing uncertainty surrounding the economic effects of the United Kingdom leaving the EU, the weakening of the GBP is also very much due to the UK's high current account deficit reaching 5% of the GDP in the past two years. Ultimately, the significant weakening of the pound sterling is a sign of the UK's deteriorating economic prospects, although in the short term, due to the improving competitiveness of the export sector, the depreciation of the GBP may support the UK's economic growth. In the third quarter Chinese output expanded by 6.7% on an annual basis; according to the government's expectations the expected growth target above 6.5% for the whole of 2016 can be reached. Chinese growth continues to depend significantly on the infrastructural developments financed by the government. At the same time, it is a favourable sign that in September an increase in consumption over 10% was registered again in the Far Eastern economy. According to our expectations, due to the saturation of the property market and the announced reduction in coal and steel industry capacities, the tendentious slowing down of Chinese economic growth - which is still high in global comparison - may continue in the following quarters. The Nobel Prize in Economic sciences, 2016 In 2016 the Nobel Prize in Economics was awarded to Oliver Hart and Bengt Holmström in recognition of their research in the field of the contract theories. In economic thinking, besides competition, examining the forms of cooperation also plays a significant role. The issue was first raised by Ronald Coase, who revealed that the development of economy is stimulated by mutually favourable exchanges, which, however, encounter obstacles, such as transaction costs. Contracts concluded between the parties help to minimise such costs. Douglass North was also awarded the Nobel Prize in relation to this issue; he analysed the development of economic systems and described the positive effects that favourably concluded and observed agreements have on economy. In 2009 within these systems Oliver Williamson and Elinor Ostrom analysed the fundamental structures of organising economic cooperation. Hart and Holmström studied an even narrower focus during their work, and they elaborated theories, with the help of which a number of issues occurring in connection with contracts can be analysed. An essential part of their work was focused on incomplete contracts, in respect of which Hart himself created a new branch of research in the field of contract theories, back in Incomplete 1

3 contracts are based on the recognition that it is impossible to specify every aspect of a contract, and the aim, instead, should be the optimal allocation of control rights. Contracts must contain a description of the circumstances under which the individual parties can exercise decision rights. This theory gave a new meaning to the ownership and management of companies, and it also had an influence on economic sciences, political sciences and a number of areas of law. They elaborated new theoretical tools, which make it possible to analyse issues such as the merger of which companies should be practically supported, what capital structure can be regarded optimal, and when institutes such as schools or prisons should be taken over by the market or by the state. They illustrated their own ideas with several expressive examples: they came up with a logical explanation to the question why workers do not own the means of production, or in respect of the client-agent problem, how clients can conclude an optimal contract with their agents. In the case of the first example the main problem is the failure of the relationship, because time and money needs to be invested in acquiring equipment and knowledge. In this case non-contractual safeguards come into the foreground, which provide protection for their owners, putting them into a stronger bargaining position. In the example, such safeguards are the means of production on the part of the entrepreneur, but the entrepreneur must also offer something similar to the worker to make it worth his while to conclude a contract with the entrepreneur. Generally, this is the company's good reputation or the termination benefits included in the contract. The theory elaborated by Hart and Holmström has proved to be easily applicable in other more remote areas as well. For example, if voters expect their re-elected representative to increase their standard of living in return for the reward, which factor is influenced by the government and many other factors, then politicians expect higher payments and safeguards that stabilise their stronger power. Consequently, the main message of their research is that incentives and the transfer of risks must be taken into consideration together, and an optimal balance between the two should be found. This idea is not novel at all, it means a return to the old traditions of European thinking that the attention is focused on institutes of collaboration, on property and on contracts. However, the novel nature and wide applicability of the methods created, together with the expressive examples elaborated, have made Hart and Holmström worthy to the Nobel Prize in Economics in A few studies in this topic: Hart, O. (1988): Incomplete Contracts and the theory of the firm. Journal of Law, Economics & Organization, Vol 4(1), pp Hart, O. Holmström, B. (1987): The theory of contracts. Advances in Economic Theory, Fifth World Congress, ed. T. Bewley, Cambridge University Press. Miller, G. Babiarz, K. S. (2013): Pay-for-performance Incentives in Low- and Middle-Income Country Health Programs. National Bureau of Economic Research, Working Paper Tirole, J. (1989): The theory of Industrial Organization. Cambridge, Mass.: MIT Press. 2

4 SZIGMA indicators Based on our SZIGMA indicator, in September the economy expanded at a rate below the trend. In September, the SZIGMA CI indicator showing the current state of economy was in the negative range, on the basis of which national economy expanded at a below-trend rate. At the same time, on the basis of the indicator, national output may have increased at a rate above the trend between June and August, which supports our projection concerning the acceleration of economic growth. The moderation of the industrial production volume indicator lasting for three months reversed in August, which may have been due to industrial sales expanding in the past few months. In August, the output of the construction industry was behind the value registered a year before again, domestic demand is still unable to counterbalance the loss of the effect of developments financed from EU funds. Although the decline of the sector's output on an annual basis is slowing down continuously, and the number of building permits issued for non-residential buildings rose to a peak in four years, the continuous expansion of the volume of orders in construction industry lasting for over six months broke in August. According to the SZIGMA LEAD indicator expressing our expectations regarding Hungary's short-term economic performance, during the third quarter Hungarian economy may expand again at an above-trend rate. From the aspect of expansion in the following months and exports it is favourable that the business climate index of the German economy, Hungary's most important trading partner, rose to a peak in twelve months. Although the performance of retail trade is expected to support economic growth in the third quarter again, retail sales have been reducing for two months following a historic peak reached in June. Based on our leading indicator, as a result of the high base due to the outstandingly favourable performance measured in the last quarter of the previous year, growth performance in the fourth quarter will be behind the value registered in the third quarter, but in the first two quarters of 2017 the national output may expand at an above-trend rate again. Overall, for the whole of this year, we presume an economic growth slightly above 2%, which is behind last year's performance. Fig 1 Szigma simultaneous (CI) and leading (LEAD) indicators Source: Századvég Real economy In August, industry expanded by 11.1% y-oy. In August, despite the strong base, industrial performance was 11.1% higher than a year before, but according to working-day adjusted data, the production volume increased at a lower rate, by 3.5%. The difference between the two data is due to the 3

5 fact that in August this year there were three more working day than last year. At the same time, the favourable data obtained in August supports our earlier presumption that the weaker performance measured in July was caused by the different scheduling of summer shutdowns as compared to last year. Industrial sales were 8.2% higher than last year, which was due to domestic sales (5.8%) and foreign sales (9.5%) alike. Fig 2 Industrial output and sales (January 2014 = 100%) Remark: Seasonally and working-day adjusted data Source: HCSO, Századvég The output of the processing industry, which is the most significant sector within industry, was 12% higher than a year before. In particular, the output of the following subsectors increased at a rate above 10%: Manufacture of textiles, clothing, leather and leather articles (13.8%) Wood processing, the manufacture of paper products, printing (12.5%) Pharmaceuticals production (18.8%) Manufacture of rubber, plastic and non-metallic mineral products (13.3%) Manufacture of basic metals and fabricated metal products (10.1%) Manufacture of computers, electronic and optical products (13.1%) Manufacture of electrical equipment (13.2%) Manufacture of machines and equipment (16.9%) Manufacture of transport equipment (16.6%) Among the subsectors of the processing industry the production volume reduced only in the manufacture of the coke and refined petroleum products subsector as compared to the same period of the previous year (6.2%). In the less significant mining sector, after a decline lasting for several months, in August the production volume was 22.5% higher than a year before, which, however, is partly due to the weak base. Based on the volume of orders in the outstanding sectors, further improvement is expected in industrial performance: in August the volume of new orders was 15.4% higher than a year before, while the total volume of orders was 5.8% higher than in In August, the performance of the construction industry was 9% lower than a year before. In August, the performance of the construction industry was 9% lower than a year before. The rate of reduction measured in the eighth month of the year is significantly 4

6 lower than before, consequently this has been the most favourable change in volumes this year. As compared to July, the production volume increased by 4.6% according to seasonally and working-day adjusted data. At the same time, just like in July, the two main groups of constructions developed differently: while in the case of buildings an increase by 7% was measured, in the case of other structures a reduction by 23.9% was recorded y-o-y. While in the former category the increase was first of all due to the construction of industrial buildings, in the latter category the reduction was basically caused by the temporary cut-off from EU funds. At the same time it must be pointed out that in the case of this main group of constructions the rate of reduction is lower than in the previous months. In the future we expect more favourable values as a result of EU funds gradually starting up, and due to the effect of the Family Housing Allowance. However, for the time being, the volume of orders is developing controversially: while the volume of new contracts is 13.3% lower, the total volume of orders is 18.5% higher than a year before. In the case of both main groups of constructions, the number of contracts at the end of the month in question is above the number recorded a year before, for the first time this year in the case of other constructions. Fig 3 Construction sector (January 2014 = 100%) Remark: Seasonally and working-day adjusted data Source: HCSO, Századvég Retail sales grew by 5.8% in August. In July, the turnover of retail trade increased by 2.9% and by 4.0% y-o-y, according to raw data and calendar-day adjusted data, respectively. The moderate expansion is due to the previous year's high base. Based on the first estimates relating to August, turnover increased by 5.8% and 4.3% y-o-y on the basis of raw data and calendar-day adjusted data, respectively. On the basis of calendar-day adjusted data, in the case of food stores and non-specialized stores with food, an increase by 2.8% was observed, while an increase by 6.1% and 7.5% was recorded in non-food retail trade and fuel retail trade, respectively. 5

7 Fig 4 Retail sales volume (January 2014 = 100%) and retail trade confidence indicator Remark: Seasonally and working-day adjusted data Source: HCSO, Eurostat, Századvég In July, the mail order and internet retail trade expanded again: an increase by 34.1% was recorded in respect of the calendar-day adjusted value. The aggregate turnover of books, computing and other manufactured articles expended by 8.0%, which was significantly due to the 8.0% increase in the turnover of stores selling computing and other manufactured articles, and the 7.4% increase in the turnover of books, newspapers and stationery. The sales turnover in stores selling textile, clothing and footwear increased by 9.5%, while in non-specialised stores with manufactured articles an increase by 3.2% was recorded. In stores specialised in furniture and technical articles and in stores specialised in perfumery, the turnover increased by 2.5% and 3.1%, respectively. The volume of the retail trade of second-hand articles continued to reduce: a decline by 8.8% was registered in the month in question. The turnover of vehicles and fuel also continued to increase by 2.5%. Unemployment fell to 5%. In August 2016 the situation on the Hungarian labour market continued to improve, although at a lower rate than in the preceding periods. The seasonally adjusted number of employees increased by 5 thousand as compared to the previous month. In the same period, the seasonally adjusted number of active participants increased by 4 thousand. As a result of this, the participation rate increased to 61.1% in August in the age group As a result of the two effects, the seasonally adjusted number of unemployed people continued to reduce, although slightly, to 231 thousand. Based on institutional statistics, the seasonally adjusted number of employees increased by 2 thousand, which means that enterprises having fewer than 5 employees still contribute significantly to increasing employment. Similarly to the previous months, the increase in the number of employees can be linked to the private sector entirely, where the number of employees increased by 6 thousand, while in the public sector it reduced by 4 thousand. Inside the public sector, the number of public workers reduced by 2 thousand on the basis of the raw data, consequently in August 207 thousand people worked in the framework of the START employment program. The seasonally adjusted unemployment rate fell to 5%, which has been the lowest value since the change of the political regime. Consequently, the favourable employment tendency lasting for several decades continues, while labour shortage occurs in an increasing number of sectors, which indicates that the growth potential of Hungarian economy can be improved first of all by adapting the training structure to the labour market. 6

8 Fig 5 Labour market trends (January 2012 = 0, thousands of persons) Remark: Seasonally and working-day adjusted data Source: HCSO, Századvég Net real wages increased by 8.6% in August. Average gross wages increased at a rate not seen since December 2014, by 6.9%, to HUF 258,260. At an annual scale, gross wages increased by 6.2% in the private sector and by 7.9% in the public sector, consequently the slower increase observed in the previous month was only due to one-off effects. The dynamic increase in wages is influenced by the increase in minimum wages and in the guaranteed minimum wage, the wage decompressions in the public sector, and the labour shortage occurring in certain segments of the private sector. Taking the evolution of prices also into consideration, gross real incomes increased by 7%, while net real incomes increased by 8.6% at an annual scale in August. This has a significant stimulating effect on the consumption expenditure by households. Fig 6 Gross wages (annual change, %) Remark: Seasonally and working-day adjusted data Source: HCSO, Századvég External balance Foreign trade surplus increased both in July and August. On the basis of the data of the Hungarian Central Statistical Office relating to July 2016, the export volume of foreign trade reduced by 5.4%, while its import volume reduced by 6.4% on an annual basis. The external trade surplus amounted to EUR 668 million, so it increased by EUR 31 million as compared to the same period of the previous year. In July, the volume of machines and transport equipment reduced in 7

9 exports by 3.1%, while it reduced in imports by 4.7%. The import volume of road vehicles fell back by nearly 8%. The export volume and import volume of processed products reduced by 3.5% and 1.3%, respectively. The import volume of energy sources increased by 10%. The import volume of crude oil and petroleum products increased by nearly 30%, while the price of oil on the world market dropped by 23% y- o-y. Based on the first estimates relating to August 2016, the surplus of foreign trade balance amounted to EUR 601 million. This value is EUR 157 million more than a year before. The value of exports and imports denominated in Euro increased by 13% and 11%, respectively, in annual comparison. Fig 7 Balance of trade (in million EUR) Source: HCSO In August 2016, the current account balance amounted to EUR million, which, together with the value recorded in the first seven months (EUR 4,962 million), significantly exceeds the value recorded in the same period of the previous year (EUR 3,540 million). The increase in the current account balance by over EUR 1.4 billion (40%) basically derives from the balance increment of trade in commodities. Fiscal outlook The year-to-date government deficit was only HUF 2.4 billion in September. At the end of September, the central government subsystem accumulated a total deficit of HUF 2.4 billion, which - according to the information provided by the Ministry of National Economy - is the most favourable data for the ninth month in the past fifteen years. In September, the central state budget posted a gap of HUF 95.5 billion, while the social security funds and the extra budgetary state funds delivered a surplus of HUF 21.3 billion and HUF 71.8 billion, respectively. In the ninth month a surplus of HUF billion was added to the accumulated deficit, as compared to the deficit of HUF 39.7 billion last year. The more favourable performance observed in the first nine months as compared to last year is due to the tax income generating effect of the favourable economic processes and to the different performance of EU funds. In September, a discharge bill concerning the 2015 budget was submitted, and it has been approved by the State Audit Office. The main data of general government finances relating to 2015 developed favourably, the cash deficit - basically due to the advanced EU funds - came to 3.6% of the GDP (HUF 1,223.6 billion). The deficit of the public sector calculated according to the EU methodology was far below the set target, 1.6% instead of 2.4% of the GDP, and the debt rate calculated using the same methodology dropped to 74.7% from the previous year's 75.7%. 8

10 Fig 8 Cumulated budget deficit (Jan Sep, in bn HUF) Source: Ministry of National Economy Monetary developments Consumer prices started to increase in September. In September, the inflation rate was 0.6% y-o-y, consequently prices started to increase slightly after several months of deflation. An increase by 0.8% was observed in the price of food products, which was due to the increase in the price of sugar, vegetable oil and seasonal food products (potatoes, fresh vegetables, fruits) by 22.2%, 5.8% and 4.3%, respectively, and to the reduction in the price of pork, eggs and poultry by 10.8%, 3.3% and 2.1%, respectively. In the case of pork, however, the moderation of prices following the cutback on the VAT rate is gradually disappearing as prices are continuously rising. Considering the current price level, half of the effect of the VAT reduction has disappeared from the sector. The prices of alcoholic drinks and tobacco products continued to increase, in September they cost more by 2% than this time last year. The prices of services (1.3%), clothing articles (0.2%), and durable consumer goods (0.2%) also increased. There was no change in household energy prices, while a reduction by 0.7% was observed in the case of the prices of other articles. Within the latter category, the price of vehicle fuel reduced by 3.9% y-o-y, which represents a significantly lower price reduction than in the previous months. The basic inflation indicators issued by the National Bank of Hungary all indicate an increase: core inflation adjusted for indirect taxes increased by 0.2 percentage points to 1.4 percentage points. Demand-driven inflation and the inflation of products the price of which changes rarely both increased by 0.1 percentage points, to 1.5 and 1.9 percentage points, respectively. According to the communication issued by the central bank, the inflation rate will remain at a permanently low level, and it will approach the 3% target value only in the middle of We do not expect any changes in the base rate before the end of The Monetary Council of the central bank, at its meeting held on 25 October 2016, did not change the base rate. However the Monetary Council decided to decrease overnight collateralised loan s interest rate from 1.15 percentage points to 1.05 percentage points and the reserve ratio from 2 percentage points to 1 percentage point. 9

11 Fig 9 Inflation (y-o-y, %) Source: NBH, Századvég The ECB and the Fed did not change their monetary conditions. The Governing Council of the ECB did not change its monetary policy instruments at its meeting held on 20 October 2016, and the Federal Open Market Committee (FOMC) in charge of setting the interest rate did not raise the interest rates in the recent period, so no effects induced by these two participants in monetary policy could be observed on the money and capital markets. Based on the minutes of the Fed's meeting held on September, the committee members have different positions on the date of continuing the interest rate-increasing cycle. The decision makers find that the chances for increasing the interest rates have hardly changed, as currently there is a 17% probability of increasing the interest rates in November, and a 68% probability of increasing the interest rates in December. Fig 10 Regional exchange rates (start date = 100%) Source: Thomson Reuters Datastream Domestic financial indicators developed differently. The regional processes induced a slight change in the financial indicators examined. The exchange rate of the Czech Crown practically stagnated, while the Polish Zloty got stronger against the Euro by 0.5%. The country risk premium (the 5-year CDS spread) of Poland did not change and remained at 76 bps, while that of the Czech Republic increased by 1 bp, to 41 bps. Domestic financial indicators became more favourable altogether. While the 5-year CDS spread, the country risk indicator, reduced by 9 bps, from 131 bps to 122 bps, in the past month the exchange rate of the Hungarian Forint stagnated against the Swiss Franc, got weaker against the US Dollar by 1.1%, and got stronger against the Euro by 1%. At the end of the period, the price of one Swiss 10

12 Franc, one Euro, and one US Dollar was HUF 282, 307 and 279, respectively. In the past month the stock of Hungarian government securities owned by foreign holders practically stagnated: following a reduction by HUF 2 billion, at the end of the period it came to HUF 3,699 billion. Fig 11 The HUF yield curve (%) Source: Government Debt Management Agency, Századvég The Monetary Council kept the base rate unchanged. Corporate lending was characterised by borrowing. _ In September, the Hungarian central bank did not change the base rate and kept it at 0.9%. Based on the minutes of the Monetary Council consisting of 9 members, all of the 8 council members attending the meeting voted on keeping the interest rate and the interest rate corridor unchanged. The members of the Monetary Council agreed that since the previous interest rate decision no developments had taken place that would call for changing the current interest rates. An interesting fact, however, is that on the three-month interest rate futures market (FRA (forward rate agreement) banks are concluding transactions at a 0.65% interest rate, so they are foreseeing that the interest rate on the 3-month instrument to be launched in 9 months will be lower by 25 bps than the current central bank base rate. After maintaining the interest rate, yields increased by a few basis points on the shortterm government securities market. 3-month yields increased by 6 bps, so they are still low (0.54%), and they are 36 bps below the reference rate (3-month central bank deposits). The yields on further treasury bills changed as follows: the yields on 6- month treasury bills and 12-month treasury bills fell by 6 bps and 2 bps, respectively. Yields on 3-year and 5-year government securities slightly reduced - by 4 bps and 3 bps, respectively -, while yields on 10-year and 15-year government securities increased by 7 bps and 11 bps, respectively. Consequently, the short and long end of the yield curve has been pushed upwards, while in the middle it has been pushed slightly downwards. 11

13 Fig 12 Corporate borrowing (in billion HUF) Source: NBH, ECB, Századvég _ According to seasonally adjusted figures, in August 2016 companies took out bank loans denominated in HUF amounting to a total net amount of HUF 46.8 billion. The net value of foreign currency denominated loan transactions amounted to HUF -2.9 billion, so non-financial companies were, in a minor extent, net loan repaying parties in August. The total amount of net borrowing in August arising from the resultant of the above two (adjusted seasonally) corresponded to HUF 62.6 billion. Basically, this is a favourable process, as in the case of loans denominated in HUF continuous borrowing takes place (seasonally adjusted), while in respect of loans denominated in foreign currency, borrowing and repaying months follow each other. This has been the fourth month of overall seasonally adjusted credit growth. The total gross lending amounting to HUF billion (excluding overdrafts) appeared to be slightly higher than the levels seen in the previous month. Newly issued loans denominated in Euro amounted to HUF 71.2 billion, showing a minor increase compared to the previous month. However, the total increment of HUF 4.4 billion does not mean that the corporate sector is exposed to foreign currency exchange rate risks at a significantly greater extent. 12

14 _ SZÁZADVÉG GAZDASÁGKUTATÓ ZRT. MONTHLY REPORT Századvég forecast 1 Fig 13 Q projection annual Q1 Q2 Q3 Q4 annual Q1 Q2 Q3 Q4 annual Gross domestic product (volume index, %) * 2,9 0,9 1,8 2,8 2,9 2,1 4,0 3,6 2,8 2,5 3,2 Household consumption expenditure (volume index, %)* 3,2 4,4 4,8 4,4 4,6 4,6 3,5 4,1 3,6 3,0 3,6 Gross fixed capital formation (volume index, %)* 1,2 11,9 17,6 6,1 3,9 9,9 0,9 5,2 6,0 5,0 4,3 Export volume index (based on national accounts, %)* 8,4 5,8 8,0 7,1 7,9 7,2 7,6 5,5 5,9 5,7 6,2 Import volume index (based on national accounts, %)* 7,7 7,8 6,0 5,9 7,3 6,8 6,5 6,2 7,1 6,6 6,6 Foreign trade balance (bn EUR) 8,6 2,6 2,8 2,2 2,2 9,8 2,5 2,6 2,7 2,1 10,0 Consumer price index (%)* 0,1 0,4 0,1 0,1 0 0,1 0,7 0,9 1,6 2,1 1,3 Central bank s base rate at the end of the period (%) 1,35 1,05 0,9 0,9 0,9 0,9 0,9 0,9 0,9 0,9 0,9 Unemployment rate (%)* 6,8 6,0 5,1 5,0 5,0 5,3 4,9 4,8 4,7 4,6 4,8 Gross average earnings (year-on-year change, %)* 4,2 6,1 6,1 6,1 5,8 6,0 4,9 5,0 5,4 6,1 5,3 Current account balance as a percentage of GDP 4,4 5,1 5,2 External financing capacity as a percentage of GDP 8,8 7,2 8,2 General government ESA-balance as a percentage of GDP 2,0 1,7 1,9 GDP based external demand (volume index, %)* 2,1 1,9 1,8 1,7 1,8 1,8 1,9 1,9 2,0 2,0 1,9 * Seasonally and working-day adjusted data. Source: HCSO, NBH, Századvég Fig 15 Changes compared to our previous forecast June Sep 2016 Difference June Sep 2016 Difference Gross domestic product (volume index, %)* 2,1 2,1 0,0 3,2 3,2 0,0 Household consumption expenditure (volume index, %)* 4,1 4,6 +0,5 3,4 3,6 +0,2 Gross fixed capital formation (volume index, %)* 5,8 9,9 4,1 3,3 4,3 +1,0 Export volume index (based on national accounts, %)* 7,4 7,2 0,2 6,2 6,2 +0,0 Import volume index (based on national accounts, %)* 7,2 6,8 0,4 6,4 6,6 +0,2 Foreign trade balance (bn EUR) 9,0 9,8 +0,8 9,3 10,0 +0,7 Consumer price index (%)* 0,4 0,1 0,3 1,6 1,3 0,3 Central bank s base rate at the end of the period (%) 0,9 0,9 0,0 0,9 0,9 0,0 Unemployment rate (%)* 5,6 5,3 0,3 5,4 4,8 0,6 Gross average earnings (year-on-year change, %)* 5,5 6,0 +0,5 5,4 5,3 0.1 Current account balance as a percentage of GDP 4,9 5,1 +0,2 4,7 5,2 +0,5 External financing capacity as a percentage of GDP* 7,2 7,2 0,0 7,9 8,2 +0,3 General government ESA-balance as a percentage of 1,8 1,7 +0,1 2,1 1,9 +0,2 GDP GDP based external demand (volume index, %)* 2,2 1,8 ** 2,3 1,9 ** * Szezonálisan kiigazított adatokból számítva. **Change of external demand cannot be compared due to model change. Forrás: Századvég-számítás 1 The forecast is valid as of 10 June

15 Disclaimer The present publication is Századvég Gazdaságkutató Zrt.'s intellectual property prepared for its partners for information purposes, on the basis of data supplied by external parties. Accordingly, the statements and projections included in the publication cannot be regarded as professional or other advice, and Századvég Gazdaságkutató Zrt. does not undertake any responsibility for the effectiveness of the decisions based on them. 14