Are you sure?

GKI expects Hungarian GDP to grow 2.5%, below official forecast

Economic think-tank GKI sees GDP growth at 2.5% in 2011, below the 3.1% growth projected by the government. It cautiously welcomes the government's economic policy turn but says it still lacks details and warns of social risks.

Although external conditions have been slightly better than expected so far this year, there is greater uncertainty than usual in the global economy, and the Hungarian economy grew 2.2% yr/yr in the first quarter, remaining below the 2.5% average of the European Union, the researchers said.

Export is projected to grow 17% and import 18% this year.

GKI notes that domestic demand has stopped declining, though is still stagnating for the moment. Domestic demand is expected to grow 1.3% in the entire year of 2011.

The general government deficit - not including the assets channeled back from the private pension funds - has developed pro-rata so far and is projected to be in line with the target.

The government's target is a deficit of 2.94% of GDP, excluding extraordinary items and a 2% surplus, including the private pension funds' assets transfer, debt takeover of transport companies and planned PPP buyouts.

GKI said the government's economic policy took a turn in the right direction in spring 2011 with the Szell Kalman structural reform program and then the updated convergence program, placing sustainable growth into the focus.

However, certain details of the new direction still remain to be developed, and those which have been published focus on curbing welfare spending and on general budget restriction rather than institutional and operating reforms. Some of the moves that have been announced are facing social resistance, while the economic policy shift has not been actually declared, GKI said, which restricts the achievability of the goals.

Nevertheless, the policy change has been received with a cautious welcome by foreign investors. While the government's balance and financing objectives for 2011-12 now seem achievable, as shown by the successful foreign-currency-denominated government bond issues, it remains to be seen how the capability to grow and attract foreign capital will be recovered after it weakened as a result of the "unorthodox policies" of the past one year, GKI said.