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GKI-Erste forecasts Hungary’s GDP to contract 2.5% in 2009

  A new forecast from economic think tank GKI, prepared in cooperation with Erste Bank, expects Hungary’s GDP to contract by 2.5% in 2009.

The GKI-Erste Bank forecast attributed the expected contraction to a natural decline in agricultural output after a sharp increase last year and a deepening of the recession which started to hit several domestic business sectors yet last year.

The researchers predicted that industrial output would drop by 3% in 2009, with a possibility of a rebound only in the fourth quarter of the year. Construction-sector output would also likely drop by 3% this year as a result of a decrease in government, business and retail investments.

The forecast noted that decreasing demand would sharpen competition on Hungarian markets in 2009.

Investment are expected to fall by 3% this year. The country’s exports are likely to stagnate and imports are expected to decline by 2% in 2009.

The GKI-Erste Bank forecast said that inflation would decrease rapidly early in 2009 due to a fall in global energy and food prices. The researchers projected inflation to average 2.8% for all of 2009, including 2.5% at the end of the year.

The forecast predicted an average euro-forint rate of 255 in 2009.

The forecast said that it is almost certain that Hungary’s general government deficit will fall well below the 3% stipulated in the Maastricht Criteria. Strict monitoring of the Hungary’s agreement with the IMF will also serve to ensure that Hungary’s general government deficit will meet the 2.6% target.

A deeper-than-expected economic recession and lower inflation present risks, however, in terms of government revenue, and higher wages are not likely to counterbalance these factors as employment decreases. Budget reserves are not expected to fully cover the likely revenue shortfall.

In the researchers’ view the deficit could be cut by a (temporary) increase in the excise tax on fuel and a partial freeze of some items of budget expenditures, if necessary. Lower inflation could justify a freeze of some expenses, they noted. (MTI-Econews)