The European Bank for Reconstruction and Development (EBRD) said it expects Hungary's economy to contract by 1.5% this year in a quarterly assessment published on Friday, slightly more than the 1.3% drop forecast in July.
The EBRD projects Hungary's GDP will edge up 0.4% in 2013, unchanged from the previous forecast. The government projects Hungary's GDP will fall by 1.2% in 2012 and grow 0.9% in 2013.
The EBRD noted that Hungary's economy contracted by 1.2% in the first half of 2012 as a slowdown on export markets was compounded by continued weak domestic demand. "Recent trends in industrial production and business confidence point to a further contraction during the remainder of the year, as indicators of household earnings and labour market trends remain weak," it added.
The EBRD said Hungary's traditional strength in attracting export-oriented investment "appears increasingly in doubt" and added that the country remains "uniquely vulnerable" to a shift in investor sentiment as it faces substantial refinancing requirements next year. It said negotiations with the International Monetary Fund and the European Union on a financial backstop "need to be urgently concluded". "This would restore some policy credibility and put tax policy on a sustainable footing," it added.