HUNGARY

GENERAL ECONOMIC SITUATION OF HUNGARY - 2001

In spite of the decline in global economic activity, the Hungarian economy performed well also in 2001. Although the rate of economic growth slowed during the year, GDP increased by 3.8 percent as a yearly average.

The industrial branch, which is the engine of the Hungarian economy, increased to a more modest degree (4.1 percent) last year, than the previous year. The growth rate in the construction industry was more lively but its importance in the whole economy does not counts as much as the industry. The state of the industry had an effect also on investments. In 2001 growth in investments amounted to 3.5 percent compared to 7.4 percent in 2000.

The foreign trade balance showed a deficit of €3.55 billion, which is 18 percent lower than the previous year. The improvement of the balance is due to the fact that the growth rate of imports declined faster than that of exports.

The external balance position of the country has also improved. The deficit of the current account reached €1 248 million, which is €700 million less than in 2000. The decrease of the deficit was caused partly by tourist surplus revenues and partly by moderating the trade deficit.

Slowing economic growth was accompanied by a consumer price increase of 9.2 percent, a figure similar to the one of the previous year.

The number of unemployed continued to drop, reaching a rate of 5.7 percent versus 6 percent in 2000.

Economic growth was promoted by foreign capital inflow (€1 083 million) and also by the antirecession measures of the government (house building supports, highways renovation subsidies, etc.).

PERFORMANCE OF THE PAPER INDUSTRY - 2001

As the data for paper export and import are still preliminary, the paper consumption is only an estimation. In recent years, paper consumption and production developed as follows:

* The content of export and import data changed last year. There has been a switch over to the classification proposed by the Confederation of European Paper Industry (CEPI). This can alter the consumption data as well. The figures of 2000 can not be compared to those of 2001.

The breakdown of paper production by grades shown in the following table:

The reason for the decrease in the country's paper production was that the Fuzfo Paper Mill went bankrupt in the second half of 2000 and stopped its production for an uncertain period. The consequence of this event was a fall in capacity of approximately 40 000 tonnes. Recently the mill was sold to a new owner but production has not started yet.

The other Hungarian paper mills performed similarly compared to previous years.

Recovered paper collection increased by approximately 11 percent (i.e. 30 000 tonnes) last year. As a consequence, the use of imported recovered paper for paper production dropped and its proportion changed from 24 percent to 16 percent.

Due to market difficulties the straw pulp production dropped from 24 000 to 21 000 tonnes.

Forest industry

The development of Hungarian forests in the last years can be summed up as follows:

It can be stated that both the forested area and growing stock are continuously increasing. The increase of growing stock can be explained by the forest area expansion, the underexploitation of harvest potentials and partly natural growth. The health condition of forest lands has been slightly impaired: the proportion of symptom-free trees is 39.5 percent while that of significantly damaged trees makes up for 21 percent. The rate and area of biotic and abiotic damages have not increased in the last years. However, species of insects and fungi that could not be found in Hungary before occur more and more frequently.

The breakdown of the forest land by ownership and use is as follows:

Breakdown by ownership		Breakdown by use
State	59%	Timber production	69.3%
Public (municipal, etc.)	1%	Protection	21.5%
Private	40%	Public welfare	2.4%
		Other	2.2%

These proportions have slightly changed to the advantage of protected forests during the last years.

As to removals, only 79 percent of the sustainable forest plan potential was removed in 2000. The state-owned forest companies used their felling possibilities at 92 percent, while private and public forest companies at only 63 percent. The unregulated situation of ownership and the delay in designation of lands continue to be a restrictive factor. The backlog in this respect is diminishing, however, not dynamically enough.

The need for protection of nature presents itself as a continuing problem in the management of forests. Currently 21 percent of the total forested area is protected and this trend puts further limits to timber harvesting.

The growth rate of production in the wood-processing industries in 2000 was slightly slower than the average of processing industries and industry in general. Domestic sales and export approximated the average sales of the processing industries. Investments in the wood-processing branch have importantly increased due to the development in a few panel plants.

The production volumes and their changes are shown in the table below:

Certified forest products

The Hungarian Privatization and State Holding Company (ÁPV Rt.) has implemented, with the support of the European Union's PHARE project, the ISO 9002 quality assurance and ISO 14001 environment management system for 19 forestry share-holding companies. These companies perform forest use and management on more than half of the forest lands of the country, representing 90 percent of State-owned forests. Forests under their management represent special national value, because they comprise the majority of Hungarian forest reserves.

Vision

The state of construction industry, being decisive for the woodworking industry, is improving. The ambitious housing programme and other important development projects initiated by the government give new perspectives to the construction industry and, as a consequence, expectations to the woodworking industry. The sawmilling industry may derive benefit from this tendency in the short term and the panel industry in the long term.