The economic growth figure was the lowest recorded since 1996 and well below the expectations of analysts, who on the whole predicted GDP would rise by over 2%. Hungary is in the middle of a tough fiscal readjustment as the government attempts to reduce its massive budget deficit, which at 9.2% in 2006 was by far the largest in the European Union. Hungary’s GDP growth had been hovering around the 4% mark for years until the government introduced its austerity measures.

Lars Christensen, analyst at Danske Bank, said that Tuesday’s figures confirmed his bank’s expectation that final GDP growth for 2007 would come in at under 2%. However, he said that while the slowdown was worse than expected it was being affected by global fears. “Hungary is particularly vulnerable to the global credit fears we are seeing because it has a huge funding need,” he told Deutsche Presse-Agentur dpa. “It’s a shame the government didn’t take these measures a year or two earlier as Hungary would have been better able to withstand the global conditions,” he continued.

Christensen said that while the government was “doing the right thing” with its austerity measures, the slowing growth would continue to hurt its popularity.
Neighboring Slovakia on Tuesday posted economic growth of 9.2%, but Christensen said Hungary should not be too worried by apparently falling behind the region. “The slowdown will make more room for growth,” he said. “A lot of countries in Central and Eastern Europe – Bulgaria, Romania and Slovakia – have not taken the measures Hungary have and will be in a worse situation in a few years.”

Inflation has also rocketed due to the measures and the KSH said Tuesday that consumer prices had risen 8.4% year-on-year in July 2007. This inflation figure is, however, now on a downward trend.  (monstersandcritics.com)