HUNGARY

1. GENERAL ECONOMIC SITUATION - 2002

In 2002 the economic growth in Hungary was slower and less smooth than in 1999-2001. Negative effects of the world economy and domestic economic factors played equal parts in this growth.

The GDP grew by approximately 3.2 percent compared to 3.8 percent in 2001.

Slackening growth was accompanied by a significant deterioration of the economic equilibrium, the deficit of the public accounts increased 192 percent compared to the previous year (3.3 billion euro as against 1.2 billion in 2001).

The inflow of foreign capital slowed down. As a consequence of this, the gross external debt of the country increased by 6 percent reaching US$35 billion at the end of the year.

Despite the instability of international oil prices, the Hungarian price level was not under inflation pressure. The inflation rate remarkably decreased in 2002 (from 9.2 to 5.4%). In the course of the year the national currency was continuously revalorized and by November it reached the upper edge of the intervention band. This situation deteriorated the competitiveness of exporters and so export could not invigorate the economy.

The unemployment rate slightly increased reaching 5.9 percent at the end of December.

In 2002, elections took place in Hungary which resulted in a change in the governing party. A coalition led by socialists replaced the coalition of conservative parties.

2. PERFORMANCE OF THE PAPER AND WOOD INDUSTRY - 2002

Paper consumption and production (`000 tonnes)

	1999	2000	2001	2002	2002/2001 (%)
Consumption	642	724	728	777*	107
Production	456	506	495	517	104
Export	213	239	310	300*	97
Import	399	457	543	560*	103

* Estimate

Based on the available data (not final), paper consumption shows a considerable increase (7%). The increase is mainly covered by import. In the last five years, paper production increased only due to modernization of existing paper machines and elimination of bottlenecks in existing production lines. As these possibilities slowly reduce, import will play the decisive role in the satisfaction of growing needs until new investments can be realized in Hungary. As a result of the modernizations mentioned above, paper production could increase by 4 percent in 2002. The Fűzfő Paper Ltd. (which went into bankruptcy last year and stopped its production) restarted production this year.

Recovered paper collection pleasingly grew in Hungary (by 10% or 34 000 tonnes) last year. As a consequence, the use of imported recovered paper for paper production dropped and its proportion changed from 16 to 8 percent.

In the only pulp mill of the country approximately the same quantity - 22 600 tonnes - of straw pulp was produced in 2002 as in previous years.

Paper production (`000 tonnes)

	1999	2000	2001	2002	2002/2001 (%)
Total paper and board	456	506	495	517	104
Newsprint	-	-	-	-	-
Coated p-w paper	-	-	-	-	-
Uncoated p-w paper	202	208	199	208	105
Household and sanitary	35	35	36	37	103
Linerboard	43	52	56	62	111
Fluting medium	125	154	159	165	104
Kraft wrapping and packaging	33	33	26	25	96
Folding boxboard	-	-	-	-	-
Other paper and board	18	24	19	20	105

Development of the Hungarian forests in recent years

	1999	2000	2001
Forested area (`000 ha)	1 767	1 782	1 798
Growing stock (gross million m3)	323	325	331
Completed regeneration of forests (`000 ha)	20.8	19.9	20.1
First afforestation (`000 ha)	8.7	9.8	15.4
Completed afforestation (`000 ha)	7.9	6.9	7.6
Removals (gross `000 m3)	6 901	7 287	7 010
Removals (% of the annual forest plan potential)	79	79	75

It can be stated that both the forested area and the growing stock are continuously growing.

The increment in standing volume can be explained with the forest area expansion, underexploitation of harvest potentials and natural growth.

The health condition of forest lands has not changed on a national level, if judged on the basis of defoliation. On the basis of reports from forest land users the rate and area of biotic and abiotic damages has slightly decreased.

Breakdown of forest land by ownership

Forest land owner	Share (%)
State	59
Public (municipal etc.)	1
Private	40

Breakdown of forest land area by use

Land use	Share (%)
Timber production	69.2
Protection	28.8
Public welfare	1.8
Other	0.2

These proportions have changed in favour of protected forests (from 21.5 to 28.8%).

As to the removals, the removed gross amount of 7 011 million cubic metres of timber represents 75 percent of the sustainable forest plan potential of 9 348 million cubic metres. The state owned forestry companies exploited their felling possibilities at 86 percent on the average, while private companies at 61 percent only, 2 percent less, than in the previous year. The demand for nature conservancy seems to be a continuing tendency in the management of forests, which puts further limits to timber harvesting.

Production data in the wood-processing industries (`000 m³)

Product	Production 2000	Production 2001	2001/2000 %
Removals (net timber volume above cut surface)	5 866	5 634	96.0
Sawnwood	198	204	103.0
Plywood	5.3	5.0	94.3
Fibreboard	60.6	59.9	98.8
Particleboard	505.3	512.4	101.4
Veneer (million m2)	22.5	22.6	100.4

In 2001, the interest for investments was strong in the wood processing arena. However, due to the relative strength of the Hungarian currency and to the decreasing prosperity of the world economy, the indices of realized investments became less favourable. The most important investments took place in the constructional joinery.

3. ISSUES OF PARTICULAR INTEREST

The Hungarian Privatisation and State Holding Company has implemented, through the support of the European Union's PHARE project, the ISO 9002 quality assurance and ISO 14001 environment management system at 19 forestry share holding companies. All these companies have organized the certification according to the standards mentioned.

One of the forestry companies has acquired certification according to the criteria and indicators of FSC and another company is working on becoming certified according to the same standard.