UPDATE - GKI outlook for growth worsens

Analysis

Economic research company GKI on Wednesday said it changed its GDP projections for Hungary to 1.5% growth in 2011 and a 1% contraction in 2012.

GKI saw Hungary's economy expanding 1.5-2.0% in both years in a projection published at the beginning of September.

GKI projects the general government deficit, cleared of one-off effects, will reach 5% of GDP this year, compared to a 2.9% gap in 2010. Taking into account the transfer of private pension funds to the state, GKI expects the general government to run a 1% of GDP surplus.

GKI chairman András Vértes said that, although the main figures of next year's budget have not yet been revealed, achieving a 2.9% deficit would require draconian austerity. He dismissed the government's 2.5% deficit target for 2012 as unrealistic.

GKI puts the National Bank of Hungary (MNB) base rate at 6.5% at the end of 2011 and 7% at the end of 2012. The rate stands at 6.00% at present.

Real wages are set rise 1.5% in 2012, but consumption will still fall about 3%.

Employment will probably stagnate and the unemployment rate will likely edge down to 10.8% in 2012 from 11% in 2011.

GKI sees a 2% fall in investments this year and stagnation in the next.

It projects export growth will slow to 6% in 2012 from 7% in 2011. Import growth is set to decline to 7% from 8% during the same period.

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