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GKI sees economy stagnating in 2010

Economic think tank GKI and Erste Bank see Hungary's economy stagnating in 2010 after contracting 6%-7% in 2009.

The government expects the economy to shrink by 6.7% in 2009 and by 0.9% in 2010.

GKI sees the farm sector stagnating in 2010, as long as weather conditions are average. In 2009, the sector contracted.

The construction sector is expected to expand about 6% in 2010, largely because of European Union-funded infrastructure projects. Improved export opportunities and a slight pick-up in domestic demand could bring industrial sector growth to 2-3%. The service sector is seen stagnating, though the financial services and real estate segments will probably contract.

Household consumption will remain little changed. Gross wages will grow just 1%, but changes to personal income tax thresholds will boost net wages by 7%-7.5%, causing real wages to rise about 3%. Real income, however, will fall as unemployment benefits are cut, family subsidies stagnate in nominal terms and pensions fall because of the elimination of pensioners' annual bonus.

Households' net savings ratio will stay around 5%.

The unemployment rate will average 9.8% in 2010, level with the rate in 2009. The employment rate is seen bottoming out in Q1 2010.

GKI sees the forint/euro exchange rate remaining around the current 270 in the first half of 2010 because of uncertainty created by general elections. If the next government continues a fiscal policy in line with that supported by an IMF-led consortium of lenders to Hungary, the forint could firm to 260.

The National Bank of Hungary (MNB) will continue with its campaign of rate cuts, GKI said. (MTI – Econews)