ANALYSIS BUSINESS CYCLE TRENDS MONTHLY B REPORT … · than in Q1 and this supports strongly our...
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1 ANALYSIS – BUSINESS CYCLE TRENDS WWW.OTPRESEARCH.COM MONTHLY BUSINESS REPORT 14 August 2015 Q2 GDP, at 2.7% YoY, surprised on the downside This morning Hungary’s Statistics Office (HCSO) published the preliminary figure for Q2 GDP, which surprised on the downside with 2.7% YoY figure, while the consensus forecast of Reuters (as well as our in-house prediction) was 3.1%. Our medium-term forecast suggests 2.7% yearly growth rate, though we fine-tune upward our short-term forecast because of the reports on a better-than-expected agricultural season and strong Q1 data. However, according to the short comment from the HCSO, earlier news about agriculture proved to be wrong while the HCSO’s seasonal adjustment brought downward revision in 2014Q4 GDP, affecting the 2015Q1’s level negatively. In 2015Q2 the QoQ change was 0.5%, a nine-quarter low, while the seasonally and working day adjusted YoY growth declined to 2.4%, the lowest level since 2013Q3. In all, we assess the incoming data as a confirmation of our previous 3.0% forecast for 2015 GDP growth, therefore we drop our short-lived upward revised forecast of 3.3%. The big picture: we expected economic growth to start slowing, after the one-off factors as well as the monetary and fiscal stimulus’ effects gradually disappear. The H1 data generally underpinned these expectations but the economic slowdown can be more gradual or slightly weaker, while the growth structure can be less balanced (due to the weaker-than-expected investment activity) than we had thought. We expected the structure of the economic growth to become more balanced than in previous year when fixed capital formation was by far the most important engine. Despite the “Grexit” problems, neither the business confidence indicators (IFO, EC), nor the growth rate of import-based external demand decelerated in Q2. The already published Q2 GDP data from some European countries also suggest that the EU could perform relatively well in Q2 (particularly if we look at the figures without Greece). Nevertheless, the Greek problem became a really hot topic at the end of Q2, so it is likely to affect the Q3 figures stronger. Yet exports’ QoQ growth significantly slowed down, but this is rather a consequence of the new Suzuki model, the serial production of which started in Q1. As imports’ growth moderated stronger than that of exports, net exports’ growth contribution can be higher in Q2 than in Q1 and this supports strongly our very high and much-above-the-consensus +5.8% (in terms of GDP) C/A balance forecast. In the light of the Q2 figure, we think that exports’ growth can be closer to the double-digit territory in 2015 as a whole, exceeding our current forecast (8%). As we emphasized earlier, the engine of this year’s growth may be household consumption, while the role of fixed investment is likely to decline, after providing substantial boost last (parliamentary election) year. As we expected and wrote in our previous reports, the growth gap between real income and retail sales disappeared, and right now the sign of the relationship is reversed. Nevertheless, there was high uncertainty about how households will react to the significant cash pay-back from the banks as required by the law. Currently we do not see strong evidence that households spend this money. The growth in gross saving stopped at the beginning of this year (or rather from 2014 H2) and the monthly saving figures declined (however, monthly figures are very volatile and strongly affected by one-off or temporary effects) in the January-February period and in June in comparison with the same period of previous year. Nevertheless, we could see significant jump in the monthly saving figures, in the March-May period, which was affected by the accounting of the cash paybacks. We did not see perceivable QoQ growth acceleration in the new car registry figure or in domestic travels (high-value purchases). Naturally, we cannot exclude that households will utilize this cash transfer stronger in H2, but currently we see a risk that this money will be spent in a smaller extent in 2015 than we had thought in our medium-term forecast. This means downside risk to this year’s consumption growth figure, but upside risk for 2016. The downside risk in consumption can be counterbalanced or outweighed by the better-than- expected net export figures this year, so it does not put the headline GDP figure at risk. Turning to investment activity, the HCSO’s data show 6.7% YoY decline in national economy investment in Q1, which led to -1.1% GDP growth contribution of gross fixed investment. We suspect that the latter figure may sink further in Q2, due to the high base in 2014Q2. Gross Trading Desks Dealing code: OTPH Live quotes at OTP BLOOMBERG page This report is available at BLOOMBERG: OTP/Macroeconomics Research page Fixed Income Desk László Kovács +36 1 288 7564 [email protected] Benedek Károly Szűts +36 1 288 7560 [email protected] FX Desk Géza Polányi +36 1 288 7521 [email protected] András Marton +36 1 288 7523 [email protected] Gábor Réthy +36 1 288 7524 [email protected] Money Market Desk Gábor Fazekas +36 1 288 7536 [email protected] Gábor Heidrich +36 1 288 7534 [email protected] Judit Szombath +36 1 288 7533 [email protected] Analyst Gábor Dunai +36 1 374 7272 [email protected]
Transcript of ANALYSIS BUSINESS CYCLE TRENDS MONTHLY B REPORT … · than in Q1 and this supports strongly our...
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ANALYSIS – BUSINESS CYCLE TRENDS
WWW.OTPRESEARCH.COM
MONTHLY BUSINESS REPORT 14 August 2015
Q2 GDP, at 2.7% YoY, surprised on the downside
This morning Hungary’s Statistics Office (HCSO) published the preliminary figure for Q2 GDP, which surprised on the downside with 2.7% YoY figure, while the consensus forecast of Reuters (as well as our in-house prediction) was 3.1%. Our medium-term forecast suggests 2.7% yearly growth rate, though we fine-tune upward our short-term forecast because of the reports on a better-than-expected agricultural season and strong Q1 data. However, according to the short comment from the HCSO, earlier news about agriculture proved to be wrong while the HCSO’s seasonal adjustment brought downward revision in 2014Q4 GDP, affecting the 2015Q1’s level negatively. In 2015Q2 the QoQ change was 0.5%, a nine-quarter low, while the seasonally and working day adjusted YoY growth declined to 2.4%, the lowest level since 2013Q3. In all, we assess the incoming data as a confirmation of our previous 3.0% forecast for 2015 GDP growth, therefore we drop our short-lived upward revised forecast of 3.3%.
The big picture: we expected economic growth to start slowing, after the one-off factors as well as the monetary and fiscal stimulus’ effects gradually disappear. The H1 data generally underpinned these expectations but the economic slowdown can be more gradual or slightly weaker, while the growth structure can be less balanced (due to the weaker-than-expected investment activity) than we had thought. We expected the structure of the economic growth to become more balanced than in previous year when fixed capital formation was by far the most important engine.
Despite the “Grexit” problems, neither the business confidence indicators (IFO, EC), nor the growth rate of import-based external demand decelerated in Q2. The already published Q2 GDP data from some European countries also suggest that the EU could perform relatively well in Q2 (particularly if we look at the figures without Greece). Nevertheless, the Greek problem became a really hot topic at the end of Q2, so it is likely to affect the Q3 figures stronger.
Yet exports’ QoQ growth significantly slowed down, but this is rather a consequence of the new Suzuki model, the serial production of which started in Q1. As imports’ growth moderated stronger than that of exports, net exports’ growth contribution can be higher in Q2 than in Q1 and this supports strongly our very high and much-above-the-consensus +5.8% (in terms of GDP) C/A balance forecast. In the light of the Q2 figure, we think that exports’ growth can be closer to the double-digit territory in 2015 as a whole, exceeding our current forecast (8%).
As we emphasized earlier, the engine of this year’s growth may be household consumption, while the role of fixed investment is likely to decline, after providing substantial boost last (parliamentary election) year. As we expected and wrote in our previous reports, the growth gap between real income and retail sales disappeared, and right now the sign of the relationship is reversed. Nevertheless, there was high uncertainty about how households will react to the significant cash pay-back from the banks as required by the law. Currently we do not see strong evidence that households spend this money. The growth in gross saving stopped at the beginning of this year (or rather from 2014 H2) and the monthly saving figures declined (however, monthly figures are very volatile and strongly affected by one-off or temporary effects) in the January-February period and in June in comparison with the same period of previous year. Nevertheless, we could see significant jump in the monthly saving figures, in the March-May period, which was affected by the accounting of the cash paybacks. We did not see perceivable QoQ growth acceleration in the new car registry figure or in domestic travels (high-value purchases). Naturally, we cannot exclude that households will utilize this cash transfer stronger in H2, but currently we see a risk that this money will be spent in a smaller extent in 2015 than we had thought in our medium-term forecast. This means downside risk to this year’s consumption growth figure, but upside risk for 2016. The downside risk in consumption can be counterbalanced or outweighed by the better-than-expected net export figures this year, so it does not put the headline GDP figure at risk.
Turning to investment activity, the HCSO’s data show 6.7% YoY decline in national economy investment in Q1, which led to -1.1% GDP growth contribution of gross fixed investment. We suspect that the latter figure may sink further in Q2, due to the high base in 2014Q2. Gross
Trading Desks Dealing code: OTPH Live quotes at OTP BLOOMBERG page
This report is available at BLOOMBERG: OTP/Macroeconomics Research page
Fixed Income Desk László Kovács
+36 1 288 7564 [email protected] Benedek Károly Szűts
+36 1 288 7560 [email protected]
FX Desk Géza Polányi
+36 1 288 7521 [email protected] András Marton
+36 1 288 7523 [email protected] Gábor Réthy
+36 1 288 7524 [email protected]
Money Market Desk Gábor Fazekas
+36 1 288 7536 [email protected] Gábor Heidrich
+36 1 288 7534 [email protected] Judit Szombath
+36 1 288 7533 [email protected]
Analyst Gábor Dunai
+36 1 374 7272 [email protected]
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EU transfers to the private sector declined in Q1 and the new business of loans to non-financial corporations moved sharply down in H1. The orders stock of construction is still in free fall, while the growth of new home building permits has slowed down recently. Adding that gross EU transfers may decelerate in 2015H2 and further slow in 2016, and non-banking net FDI inflow has been below zero for several quarters and it declined currently, we see that the prospects of investment activity is not so bright (especially if we take into account the current upturn in EU-financed investment activity of the government, which is likely to fade away). Admittedly, as the slowdown of fixed investment seems to have started earlier than we previously thought, this could lead to a smaller drop of fixed investment in 2016 than our current forecast supposes.
There are some promising signs on the real estate market. The number of home transactions was heading upward recently, which has brought increasing prices over the past one and a half years. Although the building of new homes has not accelerated yet, the new business of household mortgage loans is rising steadily, pushing prices higher. So far, it has affected existing home sales; the second phase of a real estate market revival may be the restart of building new homes. This is expected to happen when prices approach the level where building new homes is profitable. We do not think this will be the story of the next one and a half years, but it may come soon after that.
Business cycle forecasting indicators* (normalized for comparison, quarterly)
Sources: HCSO, OTP Research *as the figures are normalized, they cannot be used for numerical assessment
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Summary table of main macroeconomic indicators
Key economic indicators2010 2011 2012 2013 2014E 2015F 2016F 2015F 2016F
Real GDP change 0,8% 1,8% -1,5% 1,5% 3,6% 3,0% 1,9% 3,0% 2,5%
Household final consumption -2,8% 0,7% -2,0% 0,2% 1,6% 3,1% 1,8% 2,7% 2,4%
Household consumption expenditure -2,8% 0,8% -2,0% 0,1% 1,7% 3,5% 2,2%
Collective consumption 1,9% -0,3% 0,0% 5,0% 3,4% 1,7% 0,0%
Gross fixed capital formation -9,5% -2,2% -4,2% 5,2% 11,7% 1,0% -4,4% 1,2% 0,7%
Exports 11,3% 6,6% -1,5% 5,9% 8,7% 8,0% 8,2%
Imports 10,1% 4,5% -3,3% 5,9% 10,0% 7,6% 7,5%
General goverment balance (ESA'10 based, HUF bn) -1224 -1538 -659 -734 -829 -769 -696
in percent of GDP -4,5% -5,5% -2,3% -2,5% -2,6% -2,3% -2,0% -2,5% -2,4%
General goverment debt (in percent of GDP) 80,9% 81,0% 78,5% 77,3% 76,9% 76,3% 75,4% 76,0% 75,1%
Current account (EUR bn)* 0,3 0,8 1,8 4,0 4,1 6,2 6,8 4,8 4,7
in percent of GDP 0,3% 0,8% 1,8% 4,0% 4,0% 5,8% 6,2% 4,5% 4,3%
Gross nominal wages** 1,4% 3,0% 5,7% 3,6% 3,5% 2,3% 3,9%
Gross real wages -3,3% -0,9% 0,0% 1,8% 3,8% 2,0% 1,7%
Gross disposable income*** 2,4% 5,5% 2,5% 2,8% 5,0% 4,5% 2,2%
Gross real disposable income -2,4% 1,5% -3,0% 1,1% 5,2% 4,3% 0,0%
Employment (annual change) 0,0% 0,8% 1,7% 0,4% 5,3% 1,5% 0,4%
Employment domestic concept w/o public workers -1,5% 0,2% -0,4% 0,9% 3,3% 0,6% 0,4%
Unemployment rate (annual average) 11,2% 10,9% 10,9% 10,2% 7,7% 7,4% 7,4% 7,2% 6,8%
Inflation (annual average) 4,9% 4,0% 5,7% 1,7% -0,2% 0,2% 2,2% 0,3% 2,5%
Base rate (end of year) 5,75% 7,00% 5,75% 3,00% 2,10% 1,35% 1,35% 1,35% 1,72%
1Y Treasury Bill (average) 5,5% 6,2% 7,0% 4,11% 2,28% 1,30% 1,44%
Real interest rate (average, ex post) 0,7% 2,1% 1,3% 2,3% 2,5% 1,1% -0,7%
EUR/HUF exchange rate (average) 275,3 279,3 289,3 297,0 308,6 311,0 315,8 310,0 311,0
EUR/HUF exchange rate (end of year) 278,8 311,1 291,3 296,9 314,9 315,0 316,6 311,0 310,0
Sources: CSO, NBH, OTP Bank
*: Official data of balance of payments (excluding net errors and ommissions)
***: Calculation based on financial accounts data
Focus Eco. Aug.
**: Total wages including accrual based salaries in governmental sector. In the case of private
sector wages we calculated with whitening effect filtered wages and we adjusted the
changeable seasonality of the bonus payments.
OTP
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Indicators of external demand Chart 1: IFO* and EC sentiment indicators (monthly data, balance indicator)
1. Chart 2: External demand (annual changes, %)
Sources: Reuters, Eurostat, OTP Research *: current situation sub-index
Sources: HCSO, Eurostat, OTP Research
Chart 3: Decomposition of terms of trade (3M avg. of YoY change, %)
1. Chart 4: Export and import of goods (monthly data, SWDA, 2005=100)
Sources: HCSO, OTP Research Sources: HCSO, OTP Research
Indicators of domestic demand – Consumption
Chart 1: Consumer confidence (monthly data, balance index)
2. Chart 2: Consumer confidence and retail trade (monthly data, SA, 3M MA of annual changes, % and balance indicator)
Sources: Eurostat, OTP Research Sources: Eurostat, HCSO, OTP Research
-40,0
-30,0
-20,0
-10,0
0,0
10,0
20,0
30,0
-20
-15
-10
-5
0
5
10
15
Jan
/20
05
May
/20
05
Sep
/20
05
Jan
/20
06
May
/20
06
Sep
/20
06
Jan
/20
07
May
/20
07
Sep
/20
07
Jan
/20
08
May
/20
08
Sep
/20
08
Jan
/20
09
May
/20
09
Sep
/20
09
Jan
/20
10
May
/20
10
Sep
/20
10
Jan
/20
11
May
/20
11
Sep
/20
11
Jan
/20
12
May
/20
12
Sep
/20
12
Jan
/20
13
May
/20
13
Sep
/20
13
Jan
/20
14
May
/20
14
Sep
/20
14
Jan
/20
15
May
/20
15
Import based external demand Manufacturing based external demand
Export of goods (l.h.s)
80
95
110
125
140
155
170
185
200
215
80
95
110
125
140
155
170
185
200
215
Jan
/20
08
May
/20
08
Sep
/20
08
Jan
/20
09
May
/20
09
Sep
/20
09
Jan
/20
10
May
/20
10
Sep
/20
10
Jan
/20
11
May
/20
11
Sep
/20
11
Jan
/20
12
May
/20
12
Sep
/20
12
Jan
/20
13
May
/20
13
Sep
/20
13
Jan
/20
14
May
/20
14
Sep
/20
14
Jan
/20
15
May
/20
15
Import (SA) Export (SA) Import (trend) Export (trend)
Q1 gain fading in export
-80,0
-65,0
-50,0
-35,0
-20,0
-5,0
10,0
-12,0
-8,0
-4,0
0,0
4,0
8,0
12,0
Jan
/20
01
Oct
/20
01
Jul/
20
02
Ap
r/2
003
Jan
/20
04
Oct
/20
04
Jul/
20
05
Ap
r/2
00
6
Jan
/20
07
Oct
/20
07
Jul/
20
08
Ap
r/2
00
9
Jan
/20
10
Oct
/20
10
Jul/
20
11
Ap
r/2
01
2
Jan
/20
13
Oct
/20
13
Jul/
20
14
Ap
r/2
01
5
Retail sales Consumer confidence indicator
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ANALYSIS – BUSINESS CYCLE TRENDS
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Chart 3: Nominal wage growth (monthly data, SA, 3M MA of annual changes, %)
3. Chart 4: Real wage growth (monthly data, SA, 3M MA of annual changes, %)
Sources: HCSO, OTP Research **: w/o public work participants
Sources: HCSO, OTP Research **: w/o public work participants
Chart 5: Income in real terms* (monthly data, SA, annual changes, %)
4. Chart 6: Level of household income and retail sales (SA, 2010 = 100)
Sources: HCSO, MoF, OTP Research *: compensation of employees plus social transfers in cash
Sources: NBH, OTP Research
Indicators of domestic demand – Investments
Chart 1: New business of loans to non-financial corporations (quarterly, SA, in % of GDP)
5. Chart 2: Orders stock of construction (monthly data, SA, 2000=100)
Sources: HCSO, OTP Research Sources: HCSO, OTP Research
-10,0
-5,0
0,0
5,0
10,0
15,0
Mar
/20
04
Sep
/20
04
Mar
/20
05
Sep
/20
05
Mar
/20
06
Sep
/20
06
Mar
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12
Mar
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13
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13
Mar
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14
Sep
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14
Mar
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15
Public sector wage** Private sector wage
No acceleration in nominal wages
-15,0
-10,0
-5,0
0,0
5,0
10,0
15,0
Mar
/20
04
Sep
/20
04
Mar
/20
05
Sep
/20
05
Mar
/20
06
Sep
/20
06
Mar
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10
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11
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Mar
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12
Mar
/20
13
Sep
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13
Mar
/20
14
Sep
/20
14
Mar
/20
15
Public sector wage** Private sector wage
Real wage growth remianed stable in the private sector
90,0
95,0
100,0
105,0
110,0
115,0
120,0Ja
n/2
00
4
Jul/
20
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20
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Jan
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16
Real income Retail trade
Consumption smoothing
Fiscaladjustment
Introduction of flat tax Gap is
closing
-4
-2
0
2
4
6
8
10
19
95
/Q1
19
96
/Q1
19
97
/Q1
19
98
/Q1
19
99
/Q1
20
00
/Q1
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01
/Q1
20
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/Q1
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/Q1
20
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05
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20
07
/Q1
20
08
/Q1
20
09
/Q1
20
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20
11
/Q1
20
12
/Q1
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13
/Q1
20
14
/Q1
20
15
/Q1
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Chart 3: Capacity utilization in manufacturing in Hungary and in its neighbourhood* (quarterly data, SA)
6. Chart 4: Investment rate in the private sector (SWDA, as % of respective GDP)
Sources: Eurostat, OTP Research *average of Poland, Czech Republic, Slovakia and Romania
Sources: HCSO, OTP Research
Chart 5: New business of household mortgage loans (monthly data, SA, HUF bn)
7. Chart 6: Number of home sales (monthly, NSA, unit, YoY, %)
Sources: HCSO, OTP Research Sources: Duna House, OTP Research
Chart 7: Home prices (quarterly data, NSA, 2010 = 100)
8. Chart 8: Building permits and completed flats (annualized quarterly data, SA, unit)
Sources: HCSO, OTP Research Sources: HCSO, OTP Research
68
70
72
74
76
78
80
82
84
86
88
20
01
.02
20
01
.08
20
02
.02
20
02
.08
20
03
.02
20
03
.08
20
04
.02
20
04
.08
20
05
.02
20
05
.08
20
06
.02
20
06
.08
20
07
.02
20
07
.08
20
08
.02
20
08
.08
20
09
.02
20
09
.08
20
10
.02
20
10
.08
20
11
.02
20
11
.08
20
12
.02
20
12
.08
20
13
.02
20
13
.08
20
14
.02
20
14
.08
20
15
.02
20
15
.08
-100
-50
0
50
100
150
200
2000
4000
6000
8000
10000
12000
14000
20
11
.01
20
11
.04
20
11
.07
20
11
.10
20
12
.01
20
12
.04
20
12
.07
20
12
.10
20
13
.01
20
13
.04
20
13
.07
20
13
.10
20
14
.01
20
14
.04
20
14
.07
20
14
.10
20
15
.01
20
15
.04
20
15
.07
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
55000
60000
65000
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
55000
60000
65000
20
00
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/Q1
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/Q1
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/Q1
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/Q1
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/Q3
20
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/Q1
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07
/Q3
20
08
/Q1
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08
/Q3
20
09
/Q1
20
09
/Q3
20
10
/Q1
20
10
/Q3
20
11
/Q1
20
11
/Q3
20
12
/Q1
20
12
/Q3
20
13
/Q1
20
13
/Q3
20
14
/Q1
20
14
/Q3
20
15
/Q1
Completed flats Building permits
number of building permits crawls up
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