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Growth rising faster than expected

Economic activity in OECD countries is picking up faster than expected but volatile sovereign debt markets and overheating in emerging-market economies are presenting increasing risks to the recovery, according to the OECD’s latest Economic Outlook.

Gross domestic product (GDP) across OECD countries is projected to rise by 2.7% this year and by 2.8% in 2011. These are upward revisions from the previous, November 2009 forecasts of OECD-wide GDP growth of 1.9% in 2010 and 2.5% in 2011.

In Hungary, a weak recovery should take place during 2010 as solid growth in external demand more than offsets soft domestic demand. The recovery should gather pace in 2011 as the headwinds from ongoing weakness in the labour market and tight credit conditions ease. Inflation should decline significantly until the end of 2011 as the base effects from last year’s indirect tax increases disappear and large negative unemployment and output gaps are expected to persist for some time.

The initial success in reining in public expenditure growth has boosted investor confidence, helped to support the currency and reduced spreads on government and corporate bonds. These factors, together with the outlook for low inflation, have allowed the central bank to cut its policy rate by six percentage points since the end of 2008. To maintain investor confidence, it is essential that the government continue fiscal consolidation in line with the newly adopted medium-term fiscal framework.  Should local governments engage in over-spending during this election year offsetting measures would have to be taken. (BBJ Online)