GKI raises inflation forecast for 2012

Hungarian economic research company GKI raised its projection for average annual inflation in 2012 from 5.3% forecast in March to 5.7%. GKI chairman András Vértes said GKI was standing by its earlier projection for a 1.5% economic contraction this year.

The research institute expects GDP to drop 1.5% year-on-year both in Q2 and Q3 and a smaller decline in Q4. Hungary's GDP contracted by an unadjusted 0.7% and a calendar-adjusted 1.2% year-on-year in Q1 this year.

The researchers inflation forecast is higher and their GDP projection is more pessimistic that that of the goverment which prepared the 2012 budget assuming a 0.5% increase in GDP and 4.2% annual inflation. GKI projects household consumption to contract by 2.5% this year. It sees investments falling 4%. Vertes noted that Hungary's investment rate dropped to 16% - the third lowest ratio in the EU after the Greek and the Irish one.

GKI puts the general government deficit at 2.5% of GDP in 2012, in line with the official target. It projects a base rate of 7.0% by the end of the year, unchanged from the current rate. The researchers projected project a current account surplus of €7.5 billion.

Including net EU funding of €2.5 billion, the country will have net external financing capacity of almost 3.7% of GDP in 2012, they said. "There will be no IMF agreement this year, except in case of a stress situation on the money market, which would send current interests and rates sharply up, making the loan contract a matter of urgency for the government," Vértes said.