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Ecostat slightly lowers GDP growth forecast for 2007

The Hungarian central bank may cut the benchmark interest rate, the European Union's highest, to 6.5% by the end of the year, according to Ecostat.

Ecostat the research arm of the Central Statistics Office (KSH), projects Hungary's economy will expand 3.3% in 2008, as more EU funding becomes available helping investments grow and as household consumption increases. Ecostat projects investments could grow 5.9% in 2008, rising from a projected 2.6% in 2007. It forecasts household consumption will grow 1% in 2008, compared to a projected 0.9% fall in 2007. Ecostat expects Hungary's growth to speed up to around 4% in 2009 the earliest, Ecostat director Pál Belyó said, noting that an expected slowdown of global economic growth could work against that projection.

Ecostat puts the general government deficit, calculated according to EU standards, at 6.6% of GDP in 2007 and 5.0% in 2008. It puts the cash flow-based general government deficit at Ft 1,709.4 billion in 2007 and Ft 1,256.3 billion in 2008, improving partly on the delayed affect on the restructuring of gas and medicine price subsidies as well as a rise in public transportation fares. Belyó said that in Ecostat'a view the government was likely to carry through with its reforms, though he declined to estimate how quickly. Belyó noted that no reforms have yet been suggested in some areas, such as Hungary's local council system. The forecast shows annual average inflation projections of 7.4% in 2007 and 3.6% in 2008.

„In favorable conditions, the benchmark rate may decline 1 to 1.5 percentage points,” Ecostat says in e-mailed report. „The rate of decline in household spending, the second-round effects of regulated price increases and changes in inflation expectations” will determine the actual rate. (, bloomberg)