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EBRD projects Hungary’s economy will contract 1.5% in 2012

The European Bank for Reconstruction and Development sees Hungary’s economy contracting by 1.5% in 2012, the bank said in its fresh "Regional Economic Perspectives" report published on Tuesday.

The EBRD knocked down the projection from 0.5% GDP growth in a forecast published last October.

The EBRD said the worsening outlook was in part due to uncertainty over the timing and nature of a financial assistance package from the European Union and the International Monetary Fund. It noted that the country was at a "stand-off" with the IMF and EU over the adoption of the country’s new constitution, the implementation of laws that potentially curtail the independence of the central bank and other economic policy initiatives.

The EBRD named among other factors contributing to the downgrade of Hungary’s sovereign rating to speculative grade, the uncertainty over the refinancing of state debt, the country’s high vulnerability to the forint’s depreciation and monetary tightening in defense of the currency.