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EBRD knocks down Hungary GDP projection

Analysis

The European Bank for Reconstruction and Development (EBRD) said it expects Hungary's economy to contract by 0.8% this year in a regular assessment on Friday, compared to a forecast for a 0.1% drop in a forecast published in January. Hungary's government recently lowered its own projection for GDP growth this year to 0.7% from 0.9%. The fresh EBRD projection shows Hungary's economy growing 0.9% in 2014. The forecasts take into effect the National Bank of Hungary's recently announced “Funding for Growth Scheme,” which aims to support lending to SMEs. But the EBRD said the scheme was “unlikely to reverse investment trends unless business confidence and the investment environment improve.” The EBRD said steps the government has taken to rein in the fiscal deficit would depress domestic demand in the short run, but “may enhance confidence.” The EBRD said Hungary's 2013 budget was "likely to miss" EU targets, referring to the 3% of GDP European Union general government deficit threshold. A continuation of the European Commission's excessive deficit procedure (EDP) against the country would “significantly constrain the scope for expenditure policies ahead of the 2014 elections,” it added.

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