Hungary’s forint is under pressure again and the consensus explanation is Monday’s comments by Hungary’s central bank, which analysts viewed as somewhat hawkish.
The National Bank of Hungary raised its average inflation forecast for 2011 and 2012 by half a percentage point (in part because of the weaker forint) and cut its 2011 economic growth by 0.4 percentage points to 2.8 per cent.
Added to the mix was a report in Hungarian newspaper Népszava that the new centre-right Fidesz government is still determined to get rid of central bank governor Andras Simor, whose monetary policy and personal finances have made him persona non grata. Read more
Beware governments sporting 90 per cent public debt-to-GDP ratios: that’s the conclusion of a new research paper from the ECB.
Up to 90-100 per cent, increasing public debt increases GDP growth, finds the research. Beyond this magic range, increasing debt is associated with ever lower growth rates (see chart, right).
More than this, debt-fuelled increases in the growth rate start to slow when public debt reaches 70-80 per cent of GDP. Austerians will be pleased. A handy map from the Economist, left, shows us which countries are likely to feel the heat first. But even German debt may classify.
The paper, by Cristina Checherita and Philipp Rother, looked at the average impact for 12 eurozone countries since 1970:
It finds a non-linear impact of debt on growth with a turning point—beyond which the government debt-to-GDP ratio has a deleterious impact on long-term growth—at about 90-100% of GDP.
What did German consumers do at the height of the crisis over eurozone public finances earlier this year? A good many went shopping, according to the country’s statistical office. A detailed breakdown of gross domestic product data for the second quarter shows consumer spending increased by 0.6 per cent compared with the previous three months. That followed three consecutive quarters of contraction.
Thus, private consumption became a positive factor that contributed towards an overall 2.2 per cent increase in second quarter GDP. Although it was not as important as exports or investment spending, that is a big deal for Germany, where consumer spending is notoriously sluggish, even in boom years. Read more
The Bank of England and the Centre for Economic Policy Research hosted their fourth monetary policy roundtable on July 14, the summary report of which has only just been published.
The events follow the Chatham House Rule, which means none of the opinions or discussions are attributed to any individuals. Plus, the whole thing carries a big caveat about how it doesn’t represent the views of the BoE or the CEPR, blah blah blah. Still though, it’s an enticing read.
First up, that sticky UK inflation and the nebulous output gap:
It was also noted that the level of spare capacity might be lower than many currently judged. In particular, the financial crisis might have impaired potential supply by more than had been expected. Furthermore, the effect of a given level of spare capacity on inflation might have changed. Alternatively, inflation expectations may have risen.