Ecostat projects Hungary’s general government deficit will reach 6.8% of GDP in 2007 – in line with the government’s target – after exceeding 10% in 2006. Ecostat notes, however, that the reduction, which relies largely on increased tax revenue, could be put at risk if the tax base deviates from projections. After falling an estimated 0.4% in 2006, investments are expected to pick up in the H2 of 2007 and increase 4.2% for the whole year.

Ecostat expects the building sector to contract 3.5% in 2007, after contracting an estimated 2.5% in 2006. Unemployment will grow to 7.8% in 2007 from 7.6% in 2006. Hungary’s trade deficit on goods will narrow to €1.5 billion from €2.5 billion this year, and the balance of services will improve too. As a result of improved foreign investor confidence in Hungary, Ecostat expects FDI to reach €4 billion in 2007. The current account deficit is expected to narrow from 7.1% of GDP to 6.1% or €6.2 billion. Ecostat projects average annual inflation will pick up to 6.4% in 2007 from an expected 3.8% in 2006. CPI will peak around the middle of 2007, then start to slow.

Inflation dropped to historical lows early this year but it rose from the autumn on a VAT rise and changes to centrally-regulated prices. Ecostat said the VAT rise will affect inflation for several months and energy prices as well as transport and communal services prices will rise further. The researchers expect, on the other hand, food prices to rise at a slower rate. The price of import products will also rise less than this year due to a stronger forint. Ecostat puts the central bank’s base rate at 6.50-7.00% at the end of 2007, down from the current rate of 8.00%. It says forint will trade between 254 and 256 to euro 2007, stabilizing as a result of measures presented in the government’s convergence program. (Mti-Eco)