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GKI: downturn bottomed out in summer

Hungary's economic downturn bottomed out in the summer and GDP is likely to fall 6.5% for the full year, economic think tank GKI said in its latest projection, prepared with the cooperation of Erste Bank.

Although Hungary's GDP fell a bigger than expected 7.6% in Q2, the declines in industrial output and in exports slowed in June, and the construction sector expanded, GKI noted. The drop in retail sales also slowed although part of the slowdown could be the effect of advance purchases before a VAT rise effective July 1.

GKI sees the general government deficit narrowing to 3.8% of GDP in 2009, under the government target. It projects consumer price inflation will slow to 6.5% by year-end and puts average annual inflation at 4.7%. CPI will fall sharply in the second half of 2010 as the effect of VAT and excise tax rises enters the base period.

GKI expects the central bank base rate to fall to around 7% from 8% by the end of the year.

It puts the average forint/euro exchange rate at 270 in the second half and at 280 for the full year. (MTI-Econews)