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GKI forecasts 1% GDP growth in Hungary this year

Economic-research company GKI has reconfirmed its earlier prediction that Hungary's GDP will grow about 1% in 2010, GKI reported in an analysis prepared jointly with Erste Bank.

GKI has left Hungary's forecast 2010 GDP growth unchanged since raising it from 0% at the end of May. The GKI-Erste Bank analysis remarked that economic growth in the biggest economies of the European Union, particularly Germany, underpinned Hungary's 17% growth in exports during the first half of the year, while modest economic growth in Hungary of 0.1% in Q1 and 1% in Q2 stifled domestic demand, which declined 5% in H1. The analysis noted that not even a 3.7% rise in real wages managed to stimulate domestic demand as a result of continuingly high unemployment and a decline in the real value of pensions and family subsidies.

The GKI-Erste Bank analysis stated that the market's assessment of Hungary has deteriorated and the country's risk premium has risen since the government's subsequently retracted suggestion in June that it was on the verge of defaulting and the suspension in July of its talks with the International Monetary Fund regarding Hungary's compliance with the conditions of a November 2008 IMF-EU standby loan. The analysis noted that the market's confidence in Hungary could return if it takes a positive assessment of the government's 2011 budget and updated convergence program to be published following local-council elections in October.

GKI also reconfirmed its previously forecast average 2010 inflation of above 4% in Hungary and average forint-euro rate of around 277 this year. (MTI-Econews)