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GKI sees Hungary economy contracting faster than earlier expected

Economic think-tank GKI reported a dimmer outlook for Hungary's economy in its fresh prognosis, prepared with the cooperation of Erste Bank, projecting a 3.5% economic contraction for 2009, compared to a 2.5% fall in GDP forecast in February.  

GKI said the drop in GDP would be caused by a fall in both domestic and external demand.

GKI forecasts average annual inflation of 3.3%, up from an earlier projected 2.3%.

GKI put the average HUF/EUR exchange rate at 280 for 2009, compared to the previous projection of 270 and last year's average of 251.20.

GKI expects inflation to fall at a faster rate at the start of 2009 to around 2% by May. But an expected VAT and excise tax rise mid-year, as well as a weak forint, will cause CPI to pick up to 4.4% by December.

Gross wages are forecast to rise 4% in the business sector and to drop 1% in the government sector. Real wages are seen slipping 1% but consumption is likely to drop 3% as propensity to save rises. Private sector investments are likely to fall 5% as markets narrow and lending conditions worsen.

GKI puts the unemployment rate at 8.7% by year-end. It projects an average drop in industrial output of 10%.

Hungary's general government deficit is almost certain to fall under the 3%-of-GDP Maastricht criterion by year-end, GKI said.

GKI expects the Central Bank (MNB) to continue its campaign of cautious rate cuts. (MTI – Econews)