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Analysts see deeper recession, lower inflation than gov't

Analysts polled by MTI said the government's GDP projection for 2009 in Hungary's updated convergence program is too optimistic, but inflation is likely to be under the forecast.

Takarékbank's Gergely Suppán said Hungary's economy is likely to contract 2.8% in 2009, far more than the 0.9% contraction outlined in the base scenario of the updated convergence program. CPI will probably fall to 2.6%, well under the 4.5% projection in the program. (Annual average inflation would fall to 4.5% next year under the base scenario and would drop more, to 3.2% under an alternative scenario, based on weaker demand, in the updated program.)

The HUF 200 billion in budget reserves the government has set aside should cover a shortfall in revenue from VAT and personal income tax, but budget expenditures could be bigger than expected if more Hungarians go on the dole, Suppán said. While the government expects the number of employed to drop just 0.6% in 2009, the fall is likelier to be around 2.5%, he explained.

Pénzügykutató chief analyst Mária Zita Petschnig also said the recession would probably be deeper than the government expects and inflation likely lower than the projection in the updated convergence program. Hungary's economy will contract 2.0%, inflation would slow to 2%-2.5% in 2009, while the number of employed will drop a sharp 2.5%, she said.

Investments are expected to fall 4%, and real wages by 2%, she said. Exports and consumption will also decline.

Petschnig put the unemployment rate at 9.5% for 2009, well over the government's projection of 8.0%. (MTI – Econews)