Ecostat projects 4% GDP growth in 2006

Analysis

Ecostat, the research arm of Hungary's Central Statistics Office (KSH), projects GDP growth of 4% in 2006, according to its latest monthly Microscope report published Tuesday.

Growth will be helped by growing investments and increasing exports. In the second half of the year, domestic consumption will decrease only slightly, as will real wages. Ecostat projects a cashflow-based general government deficit of Ft 2,000 billion in 2006, or 8.7% of expected GDP. Recently introduced austerity measures will result in savings of Ft 250 billion-Ft 300 billion in 2006, with savings related to some measures expected to flow in only next year. Ecostat projects an accrual-based deficit of 10.2% of GDP in 2006, excluding the effect of any corrections.
Ecostat says projections for 2007 are more difficult to make because of the unknown effect of the government's austerity measures. Still, it says domestic consumption will slow only slightly in 2007, rising 1.9%. Public consumption will increase 1%-1.5%, it says, and inflation will rise over 5%, well above the increase in factory gate prices. Hungary's economy will expand by 1-1.5 fewer percentage points in 2007, but growth will not fall under 3%. Growth will depend on the global economic climate as well as whether Hungary's exports continue to outpace imports. Hungary's current account deficit will improve, but could still exceed Ft 6 billion. Investments will increase 7%-8%, Ecostat said.
Ecostat points out that the government's austerity package, which aims to save Ft 1,000 billion, could backfire if it encourages tax evasion. Slower growth will also mean less tax revenue. Still, savings could amount to 2.5% of GDP in 2007, allowing an accrual-based deficit of 6.5%-7% of GDP.

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