The European Bank for Reconstruction and Development (EBRD) knocked down GDP projections for Hungary in a report published on Wednesday.
The EBRD projects GDP will fall 1.3% in 2012 and edge up 0.4% in 2013 in the fresh Regional Economic Perspectives report. In a forecast published in May, the EBRD projected GDP would fall 1.0% in 2012 and climb 0.7% in 2013.
Industrial output trends have been "poor" since the end of 2011 and the contraction in domestic consumption remains the main factor for the recession in 2012, the EBRD said. Deleveraging by mainly foreign-owned banks will further hold back growth, it added.
The EBRD said a newly adopted tax on financial transactions did not help sentiment in the banking sector.
It said the start of negotiations on precautionary financial assistance Hungary is seeking from the International Monetary Fund and the European Union "can raise expectations that fiscal and external vulnerabilities would be addressed", but added that "multiple tax and regulatory issues will pose formidable challenges to an early completion of the discussions".