OECD raises Hungary GDP forecast

Analysis

Hungary's economy is set to grow by 0.5% in 2013, according to a fresh economic forecast published by the OECD on Wednesday. In a forecast published last November, the OECD projected the economy would contract by 0.1% this year. The government projects GDP growth of 0.7% in 2013. "As deleveraging, high uncertainty and poor business confidence will continue to weigh on private domestic demand, growth will hinge on exports," the OECD said. It projects private consumption will decline by 0.8% in 2013, but exports are set to climb 2.4%. The OECD projects GDP will increase 1.3% in 2014, with private consumption edging up 0.4%. It projects the general government deficit will reach 2.8% of GDP in 2013 but widen to 3.2% - over the European Union threshold - in 2014. The OECD noted "substantial progress" by authorities in reducing the budget deficit, but said they should "rebalance consolidation towards expenditure restraint and more growth-friendly taxation, notably by phasing out distortive taxes on banks and non-tradable sectors". The OECD said a sharp depreciation of the forint is the "main risk" for Hungary, explaining that such a weakening could have destabilising effects because of the high proportion of foreign currency-denominated loans in lenders' retail and corporate portfolios. "Prudent monetary policy is key to stabilising expectations and avoiding a weakening of the forint," it added. The OECD put average annual consumer price inflation at 2.8% in 2013, kept low in part by a government-mandated reduction in household utilities prices. But it sees CPI climbing to 3.5% in 2014 as core inflation remains over 3% because of "entrenched high inflation expectations".

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