Hungary's National Economy Ministry changed its GDP forecast for 2010 from a 0.2% contraction to 0.6% growth in a report published on Tuesday.
The ministry attributed the improved outlook to better-than-expected first-quarter GDP data and higher projections for growth on Hungary's main export markets. Global growth was bigger than expected in Q1, and industrial data and confidence indicators point to a continued pick-up in the real economy in Q2, the ministry said. It put global growth at 4.5% in both 2010 and 2011, but noted increased downward risk for 2011.
The previous projection was made by the Finance Ministry of the previous government in March. The latest forecast was based on macroeconomic data published until July 26.
The ministry changed its projection for domestic consumption in 2010 to a 1.0% contraction from a 1.5% contraction. Household consumption is set to decline 2.5%, a fraction less than the 2.6% drop forecast in March.
The ministry puts fixed capital formation at 0.8%, down from 1.3% in the previous forecast as an expected sharp, 15% drop in households' investments in homes will more than offset higher investment by businesses.
The forecasts for export and import growth – of both trade in goods and services – were raised to 9.9% from 5.5%, and to 8.8% to 4.4%, respectively.
The ministry puts real wage growth at 2.2% in 2010, down from 3.0% projected earlier. It sees the unemployment rate reaching 11.7%, compared to 10.6% projected in March. It projects the number of employed will drop by 0.5% instead of by 1.1%.
Hungary's business sector added jobs in May for the first time in a year and a half, but the slow pace of new hires as well as the growing proportion of long-term unemployed is likely to keep the unemployment rate high, the ministry said.
The ministry raised its forecast for annual average inflation to 4.7% from 4.3%, citing a weaker forint, higher food prices and increased pressure from imported prices.
The ministry sees the current-account breaking even, compared to a 0.4%-of-GDP deficit projected in March, citing an expected record surplus on trade of goods and services. It puts the net external financing capacity at around 1.7% of GDP.
The ministry stands by its 3.8% of GDP deficit target. The cashflow-based general government deficit did not improve in Q1 but the accrual-based (EU-conform) deficit fell in an annual comparison, the ministry said. The general government's position could have deteriorated, however, in Q2 as a decline in revenues was not offset by less spending. The deficit of the central government reached 119% of the full-year target at the end of June, but higher budget revenue and lower costs resulting from the government's 29-point action plan will ensure the target is met, the ministry said.
Developments on Hungary's financial markets have been largely determined by movements on global markets, but domestic news has also had a temporary effect, the ministry said. The forint's exchange rate has become more volatile and yields have risen slightly, although government securities yields are still low in a long-term comparison, it added. (MTI-Econews)