GKI expects the inflation rate to peak close to 9% in the Q1 of 2007, after which it will gradually fall for the rest of the year to give Hungary average annual inflation of 6.5%. The National Bank of Hungary will probably start cutting rates in the second quarter already, reducing the base rate to 6.00-6.50% by year-end, GKI said. GKI projects real wages will fall 3.0-3.5% in 2007. Hungary’s current-account deficit in 2006 was much better than expected, GKI noted, narrowing 800 million from 2005. FDI in Hungary fell, however, although Hungarian investments abroad rose. Driven by exports, industrial production continued to grow in January at about the same rate as in 2006 – around 10%. Energy production fell 3.5% because of the mild winter weather, but production in the building materials sector jumped 60%. Building sector output fell, however, 3% in volume terms, albeit from a high base.
Both Hungary’s exports and imports rose about 20% in January compared to the same month a year earlier, but imports rose slightly faster than exports, unlike recent years. GKI expects exports to increase 13% for the whole year and imports to rise 10%. It projects Hungary’s terms of trade will stop deteriorating. Gross wages rose 7.1% in January from the same month in 2006, and net wages were up 0.9%. Real wages fell 6.4%. The gap between gross and net wages widened as did the difference between public and private sector wage growth, which were 5.6% and 10.4%, respectively, in January. January data reflect, however, several one-off factors, GKI said. It projected net wages will rise 3% for the full year.
GKI attributed the forint’s marked firming in March to speculation its +/-15% trading band would be scrapped, the appreciation of the Slovak koruna, high forint interest rates and good macroeconomic figures published in Hungary and the region. It projects an average forint/euro rate of 252 in 2007. GKI projects the general government deficit will fall to 6.5% of GDP in 2007, under the government’s revised target of 6.7% and well under last year’s deficit of around 10% of GDP. GKI noted that the deficit in the first months was high but fell under the respecting official projections allowing the government to revise its annual target by a slight 0.1 percentage points. (google.com, bloomberg)
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