Weak growth could push Hungary to save extra HUF 100 bln - analysts

If the Hungarian economy grows by 1% less than the government’s 3% target in 2012, further HUF 100 billion fiscal adjustment will be needed on top of what is in the Széll Kálmán Plan to meet the budget deficit target, Portfolio.hu reports quoting local news portal origo.hu.

The weaker-than-expected performance may force the cabinet to rethink the bases for budget planning, said András Kármán, Secretary of State at the National Economy Ministry, in a interview with Reuters. The government will wait for the breakdown of Q2 GDP data, due September 8, before deciding on any revision in targets, he added.

The Economy Ministry will have about three weeks to look into the matter, since the 2012 budget bill will need to be submitted by 30 September.

Origo.hu learned from sources taking part in the planning of the budget that the a single percentage point undershoot of the 3% growth target would hit a 0.3-0.4% of GDP whole in the budget balance. In forint terms a 0.3-0.4% of GDP negative impact means the budget shortfall would be HUF 90-120 billion higher next year due to the worse economic outlook.

The portal pointed out that this is how much the government would need to top up its HUF 550 billion adjustment package laid down in the Széll Kálmán Plan. This would be even bigger than the HUF 600 billion balance improvement the central bank (NBH) thought in mid-July would be necessary.

One of the possible means by which further adjustment could be achieved is putting the crimp in the phasing out of super-grossing, which would in itself improve the balance by HUF 140-160 billion. Another possibility is to ban companies from accounting all their losses in profitable years.

Data showed yesterday that annual economic growth slowed to 1.5% in Q2 from 2.5% in the previous quarter.

Prime Minister Viktor Orbán is scheduled to hold a press conference today at 15:00 CET on the impacts of the euro crisis on Hungary.

The government remains committed to reducing state debt and restoring the balance of thee budget and it means to adhere to this commitment also in the planning of the 2012 budget, it added.

Peter Attard Montalto, analyst at Nomura in London says the concern for Hungary is that the slowdown in global trade momentum will only really hit in the third quarter of 2011. He believes that this will add "a further substantial drag" on household and corporate balance sheets.

The analyst said lower growth will be a "political test." In Hungary he thinks the real test of the governing right-of-centre Fidesz party’s multi-target programme (growth, the "war on debt", fiscal consolidation and structural reform) will be put to the test, even more so than Montalto thought previously.

Overall, Montalto continues to believe in the face of lower growth Fidesz will maintain its belief in its reforms to boost growth and prioritize debt reduction, followed by structural reform. He has lowered his growth forecast to 1.9% this year and 1.6% next year, from 2.7% and 2.8% previously.

Nomura sees rates on hold until the end of 2013, while its budget forecasts have shifted to a deficit of -4.0% of GDP for next year and a deficit of -3.1% for 2013 - "next year remains the largest miss vs. the government’s targets."

Lower growth also means it will take longer to reach a sub-70% debt to GDP - Montalto now sees that occurring at the start of 2014 not the start of 2013 as previously thought.

"This alone may be sufficient to keep the government trying to reduce debt dramatically through next year, but may well result in further one-off measures."