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FinMin: Gov’t considers possibility of economic stagnation in 2009 - extended

Though the government projects 1.2% GDP growth for 2009 in its revised budget, it is also considering the possibility that Hungary’s economy could stagnate or contract, Finance Minister János Veres said in a television interview on Tuesday morning.

The government does not intend to submit a new revision of the budget, rather changes fitting new projections can be made in the course of parliamentary debate, Veres said.

Speaking about possible spending cuts, Veres confirmed that the Socialist’s parliamentary group had looked at several variations affecting annual bonuses for pensioners and some public sector workers and mandated the government to implement expenditure reductions necessary for Hungary’s new macroeconomic path. He stressed that the second half of this year’s annual bonus for pensioners is already covered and will not be affected. The annual bonuses are about the size of a full month’s pension payment.

Veres declined to comment on Hungary’s talks with the International Monetary Fund, but stressed that the country is negotiating with many organizations at once, including the IMF and the EU.

Earlier this month the government withdrew its original budget draft from parliament as the global economic crisis rendered its main economic assumptions obsolete. The revised draft targets a budget deficit of 2.9% of gross domestic product next year based on the assumption that the economy will grow by 1.2%, well below the previous projection of 3%.

However on Tuesday, Veres said even the revised assumption may prove overly optimistic and the government drew up alternative scenarios to allow for weaker growth or even a recession next year. “As a result of the changes that took effect in the global economy, the Hungarian government considered it worthwhile to assess what a potential worst-case scenario for 2009 can be compared with an optimal or a normal scenario,” Veres said.

Prime Minister Ferenc Gyurcsány will meet with parliamentary party leaders on Tuesday to brief them about the new projections and the ongoing talks with the International Monetary Fund about a standby loan for Hungary. (MTI-Econews, Reuters)