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GKI predicts forint firming if reform promises kept

If the new government elected to office a week ago keeps its campaign promises and focuses on managing the budget deficit and starting a series of reforms, the Hungarian currency will firm and interest rates can go down, said a forecast by economic research institute GKI and Erste Bank, made public on Tuesday.

GKI said it expected a 4.4% growth rate coming after last year's 4.1%, an 8% rise in investments, and a combined current account and asset balance deficit of €6.5 billion, €800 million higher than a year ago. GKI predicts a cash-flow-based public finance deficit of Ft 1,750 billion (€6.6 billion) excluding local governments as opposed to the finance ministry's prediction of Ft 1,543 billion (€5.8 billion).
In the first two months of the year, gross earnings were up by 7.2%, GKI reported. The rise was 9.1% in the private sector. Real earnings for the two months were up by 5.6% overall. The increase was 6.7% in the private sector and 4% in the public one. Unemployment rose to 7.7% as opposed to the 7.1% registered a year ago.
GKI also noted that the public finance deficit for the first quarter of the year, calculated by cash flow, was over half of the amount anticipated for the entire year. GKI expects the inflation rate to drop to below 2% by the end of the first half of the year, but then to rise again as measures are taken to improve the budget balance, such as increasing the 15% value added tax rate to 20%. Measures of this sort could increase the inflation rate to 3.5% by year-end, the analysts said. Despite that, the international financial world will show its increased confidence through a firming of the forint and a drop in the central bank interest rate, GKI predicted.