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Fiscal Council optimistic for 2010, but more cautious for 2011, 2012

Hungary's Fiscal Council deems the short-term macroeconomic climate favorable for meeting targets in the 2010 budget bill, but is more pessimistic concerning the mid-term outlook, the council said in its report on the bill on Friday.

Based on its own methodology, the council forecasts a 0.5% fall in GDP for 2010 as opposed to the government's forecast of a 0.9% decline. The council sees household consumption falling 1.9% as against a 2.4% drop seen by the government. It puts average annual CPI at 4.4%, under the 4.1% assumption in the budget bill. The council expects investment volume to fall a further 0.5%, compare to the 0.6% increase expected by the government. The council's projection for a 4.1% nominal wage increase is over the 3.7% rise seen by the government.

For 2011 and 2012, however, the council maintains a gloomier outlook, mainly because of uncertainty surrounding external conditions. Expansion on Hungary's biggest export markets could be curbed as its biggest trade partners deal with high levels of state debt after the crisis. This risk will limit the room for maneuver for Hungary's fiscal policy.

The fiscal council projects GDP growth of 3.2% in 2011 and 3.3% in 2012, well under the respective 3.9% and 4.0% government forecasts. It puts average annual inflation at 3.2% in 2011 and 3.0% in 2012, higher than the government's respective forecasts of 2.2% and 2.6%.

In the council's view, tax measures decided this year will result in higher inflation in the short term but boost output by 1%-1.5% later. A reshuffling of taxes supports net exports and the effect of VAT rate in crease is more than offset by the cut in the payroll tax, the council said. (MTI-Econews)