The Czech koruna was under pressure yesterday due to a worse-than-expected purchasing managers’ index, which dimmed prospects of a near recovery of the Czech economy of. The koruna weakened to its 9-month low and approached the psychological level at 26.00 EUR/CZK. Neither the Polish zloty performed well. Polish PMI contracted in March as well and, consequently, the government signalled possibility of a wider budget deficit.
The Hungarian forint outperformed its regional peers. The currency was supported by a better than expected PMI, encouraging preliminary budget deficit figures as well as a statement of the economy minister Mihaly Varga, who said that the government did not like weak forint and that the monetary easing cycle might be approaching its end.
Due to weak budgetary discipline, Hungary has been under the excessive deficit procedure since May 2004 and its government has been trying now to close it as soon as possible. Hungary already reached a budget surplus once, back in 2011, but only owing to dubious measures (private pension funds asset were nationalised). Now, chances look better. According to preliminary data from the
Central Statistical Office, the general government deficit was 2% of GDP in 2012 and thus undershot the target of 2.7%. The good result was mainly due to rising revenues (6.6% y/y) owing to first of all tax rate hikes (the VAT rate is 27%), while expenditures dropped by 0.6% y/y. Although social benefits, intermediate consumption and interest expenditures rose and the fall of overall expenditures was supported by one-off items (payment of the debt of the Hungarian Development Bank recorded in the base year, etc) it seems that expenditure restraint policy adopted by the central government has been successful.