Central Bank raises inflation forecasts, cuts provisional GDP growth figure

The 2008 figure was also increased to an average 4.5% from the earlier 3.6%. The negative figures are motivated by the recent rise in the price of oil and food products, MNB said. While these factors contribute to prospects falling short of expectations in 2007 and 2008, the economy is likely to slightly outperform mid-term targets by 2009, MNB said. Accordingly, MNB slashed its 2009 inflation forecasts from the 2.8% of May to 2.4%.

MNB decreased its provisional figures for the annual growth of the GDP from 2.5% to 2% yesterday. The decision is motivated by the disappointing growth of a mere 1.4% in Q2 compared to last year, as well as other factors indicating that growth may revert to a sluggish pace. Consequently, MNB also reduced the 2008 growth forecast form the 2.8% published in May to 2.7%, while leaving the 2009 figure of 3.4% untouched.

The Central Bank report notes that the Hungarian economy recently sustained temporary setbacks, such as frost and drought hitting the agriculture and food sectors. The more significant, long term risks that provide greater cause for concern are the latest figures on construction output and state spending.

Hungary’s central bank on Monday as expected held the base interest rate at 7.75%, with observers saying that the decision was most likely due to jitters on global capital markets. (Gazdasági Rádió, Magyar Hirlap, Napi Gazdaság)