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Low inflation and strong forint here to stay

Continuing a trend that started in H2 2004, this year will see 3.8% economic growth, according to the latest forecast by economic research institute GKI Rt, conducted in cooperation with Erste Bank. Year-on-year inflation will not get any lower than it was in February, with a dynamic rise in real wages. Exports and FDI will probably remain the major driving forces behind Hungary?s economy, but consumption is also expected to grow fast. However, the growth rate of demand for Hungarian exports is unlikely to equal last year?s as the EU?s economic growth is predicted to drop from 2.2% in 2004 to 1.9% this year; at the same time, business confidence in the domestic market is also forecast to decline. GKI?s research team expects real wages to grow by approximately 4.5%; on the other hand, unemployment will rise.
Following markedly decreasing inflation rates in January and February, the rate of inflation are seen as likely to rise by a small degree later this year. However, inflation will remain below 4% at the end of the year as well as in the entire year 2005. Although the strengthening of the forint has recently stopped as certain foreign investors pulled out of the entire region, yet the Hungarian currency remains very strong. That this trend is here to stay is also likely because the indebtedness of the state, businesses and households in foreign currencies will create permanent demand for the forint through exchanges. The extremely low inflation rate, coupled with the strong currency, will allow further rate cuts, GKI said.