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GKI lowers GDP forecast for 2011 to 2.5%

Economic research company GKI has lowered its GDP growth forecast for Hungary in 2011 from 3.0% to 2.5%, GKI chairman András Vértes said.

GKI left its projection for growth in 2010 unchanged at 1%.

The government will more or less bring the general government deficit under 3% of GDP in 2011, as targeted, GKI said in the projection, which is the third one published so far this year. The projected 2.5% growth will shave about one percentage point off the deficit, however, serious tax reductions would make meeting the target a significant challenge, GKI added.

Hungary can get its financing from the markets in 2011, but GKI said it would be more expensive and riskier without the protective deflector provided by an IMF loan agreement if the country cannot win back investor confidence by other means, such as genuine structural reforms, entry into the ERM-2 and implementing a credible program for joining the eurozone.

GKI sees Hungary's level of state debt falling from around 80% of GDP in 2010 to 76-77% in 2011.

It projects a €2.6 billion surplus in the current and capital account in 2011, about the same as in 2010. It forecasts net foreign debt will fall from €52 billion at the end of 2009 to €46.5 billion, or 44% of GDP, at the end of 2011.

Industrial output will grow 7% in 2011, slowing from 8.5% in 2010, according to GKI. Exports will remain the engine of growth as domestic sales pick up only from the second half of 2011.

The construction sector is set to expand 4% in 2011 after years of contraction, but the property market will continue to stagnate.

Investments will grow 4% in 2011, following a 3% drop in 2010. The rise will come on capital expenditures in the private sector.

The farm sector is seen expanding 10% in 2011, after an expected contraction of a similar size in 2010.

GKI projects retail sales will inch up 1% in 2011 after falling 3% in 2010, but sales of big-ticket items will stagnate.

Real wages are set to rise 3% in 2011, slowing from an expected 4% increase in 2010. Real income is expected to climb 1.5% in 2011.

Households' gross savings rate is set to rise to 5%, while the net savings rate remains around 5%.

GKI forecasts the average annual unemployment rate will fall from 11.5% in 2010 to 11.0% in 2011.

Consumer price inflation will average 3.5% in 2011, down from 4.8% in 2010.

GKI puts the average HUF/EUR cross rate at 270 in 2011, firming from 277 in 2010.

The National Bank of Hungary is likely to keep rates steady, or at most make a small reduction to around 5% by the end of 2011 from 5.25% at present. (MTI – Econews)