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City sees slight CPI uptick and GDP boost

Hungary's CPI is likely to have gained some momentum last month on the back of a continuing pass-through from recent commodity shocks, but a preliminary estimate of Q1/2011 GDP growth will also likely suggest a more robust recovery, London-based emerging markets analysts said prior to data releases due later this week. They predict 4.5-4.7% inflation year-on-year from April after 4.5% in March, and see GDP growth accelerating to 2.0 to 2.8% year-on-year in Q1 after 1.9% in Q4 2010.

Economist at Goldman Sachs (GS) said they expect that Hungarian headline inflation will have accelerated to 4.7% year-on-year in April from 4.5% in March, on continued increase in food, energy, and fuel prices, and higher core inflation, rising as a result of earlier supply-side shocks.

In the next months, inflation is likely to rise even further, as supply-side shocks continue to affect the headline and pass-through to core inflation, Goldman Sachs said.

GS added it sees GDP growth picking up to 0.8% quarter-on-quarter, on a seasonally and working day adjusted basis, from 0.2% in Q4/2010, resulting in "a small acceleration" in annual growth to 2.0% from 1.9%.

"We expect net exports to be the predominant driver of growth ... domestic demand should be growth neutral, with investments and private consumption not picking up visibly". Government spending - partially funded by liquidation of pension funds assets - could support growth, GS said.

In a separate forecast, JP Morgan said that a further rise in food price inflation should have pushed the over-year-ago CPI rate up further to 4.7% in April from 4.5% in March. Core inflation probably also inched higher on continued pass-through from processed food and energy prices.

Hungary's GDP growth likely picked up to around 2.5% year-on-year in 1Q/2011 from 1.9% in 4Q/2011, JP Morgan said.

Although expenditure-side details will not be published in this week's preliminary GDP release, the expansion should be led by a rise in domestic final sales on the back of the cut in personal income taxes. The monthly data also suggest that the positive contribution from net exports remained significant, JP Morgan said.

Barclays Capital said that Hungary's growth prospects appear to be improving as the latest manufacturing PMI "was very strong". Given the rapid increase in PMI, industrial production, and exports in the first quarter, "we anticipate GDP growth rose to 2.8% (year-on-year) in Q1/2011".

It added, however, that it expects inflation to have remained unchanged at 4.5% year-on-year in April.