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GKI lowers growth forecast for 2013

Economic research company GKI expects the Hungarian economy to stagnate in 2013 after declining 1.5% this year due to the recently announced austerity measures, GKI said in its latest forecast, lowering its GDP growth forecast from 0.8%.

GKI said the government's latest fiscal adjustment package, which includes tax rises, and particularly the postponement of the scheduled halving of the special bank levy, greatly deteriorates the business climate. The adverse effects of the adjustments on lending and demand more than offset the positive impact of a recent job protection action plan that will make employment of specified employee groups cheaper, the reserchers said.
GKI sees both gross and net wages rising at around 4% in 2013. Inflation is expected to accelerate to 5.5% as an annual average, slightly down from 5.9% this year. Real wages could fall 1.5% and consumption is expected to decline 1%. GKI expects investments to decline further, at a pace of 2%. Employment is expected to shrink further in the business sector.
The government apparently subordinates everything to the lifting of the excessive deficit procedure through meeting the deficit target of under 3% of GDP next year, however, the measures taken to achieve this are not sustainable, impede growth, and do not help the restructuring of the economy. Therefore, it could happen that no decision is taken on the lifting of the procedure for the time being, GKI said.
The country will not move closer to the IMF/EU-agreement, while the current relatively favourable financing of the country's government debt reflects external conditions, and could prove only temporary, the researchers said.