THE SZIGMA INDICATOR SYSTEM
The index system created by Századvég Economic Research Institute can provide up-to-date information to decision-makers on the present state of the Hungarian economy and the anticipated growth prospects on a monthly basis.
A great advantage of the index system is that it compresses several bits of information into two indicators, thus top managers can easily obtain information on the current status of the economy and its potential prospects for growth. SZIGMA (Századvég Index a Gazdasági Momentum Alakulásáról – Századvég Index on the Actual State of the Economy) performs much better than a similar indicator developed by OECD.
The index is composed of two parts: SZIGMA CI summarizes the current state of the economy in a single figure, while SZIGMA LEAD provides an overview of the prospective economic growth in 9 months (3 quarters).
In case of the CI index, the indicator is positive, if the economic growth is greater than the value of the earlier trend, and it is negative if the economic growth is lower. If the SZIGMA LEAD indicator is positive, growth will be greater than the expected trend value in 9 months, if the indicator is negative, growth will be below the trend in the foreseeable future.
The value of the index is demonstrated in the figure below. Our SZIGMA indicator shows that the economy grew slightly below the trend.
Source: Századvég Economic Research Institute
The SZIGMA CI indicator, which provides a picture of the Hungarian economy, had a minimally negative value in July, i.e. the expansion rate of the economy was slightly below the trend in the seventh month of the year. On a year-on-year basis, the volume of new sales orders in the industry increased dynamically again, by 12.4 percent, which was driven by the increase of both domestic and export orders (10.3 percent and 12.9 percent, respectively). The seasonally and calendar-adjusted volume index of industrial production did also increase; thus, industrial output is expected to further support the expansion of the Hungarian economy. The total value of construction contracts, however, continued to lose its growth dynamism—the total value of contracts at the end of the month was 62.1 percent higher on a year-on-year basis. The volume of new, non-residential building projects decreased substantially (-15 percent), due to the high base value of the previous year. Despite the slowdown of growth in total contract value, the sector is expected to keep its dynamic growth on a year-on-year basis.
Based on the SZIGMA LEAD indicator, which expresses our expectations regarding the short-term growth of the Hungarian economy, an above-the-trend economic growth might be expected in the rest of the year. The Ifo Business Climate index, which provides a picture of the changes of the business climate of the German market and has been measured since 1991, decreased by 0.1 index points to 101.7 points in July, a level last seen in October 2016. The index is decreasing still due to the trade war. Despite the decrease, the current value of the Ifo index means a high level; therefore, the positive external environment is expected to support the output expansion in Hungary in the next months as well. As expected, retail sales continued to expand, allowing for the expectation that its contribution to growth might further improve, in comparison with the previous months. Despite the expansion of retail sales, the consumer trust index dropped by 3.4 index points, to -9.6 points on a month-over-previous-month basis; while on a year-over-year basis, it is 4.5 percent higher than it was in the same period of the previous year. The negative index value implies that an improvement in trust could further expand sales. Overall, the improvement in investment activity and the growth of consumption due to the dynamically increasing real wages allow us to expect an economic growth of more than 4 percent in 2018.