Hungary today reiterated an earlier estimate of Q4 growth, confirming the economy lost momentum. as government measures to curb a budget deficit sapped consumer spending, while state investments dropped.
The annual growth rate in the Q4 was 3.2%, the Budapest-based statistical office said today, confirming a preliminary figure released on February 14. That is the slowest pace since the Q1 of 2005 and compares with 3.8% in the previous three-month period. Prime Minister Ferenc Gyurcsány has raised taxes and cut subsidies to meet European Union demands that he bring down the fiscal deficit, deterring investors and crimping household spending. Consumer confidence has declined and the government reduced spending on projects such as highway construction.
„Household consumption grew at a slower pace each quarter, following the deceleration of real wages,” the statistics office said in its statement. „For the first time in many years, investments aren't a driver of economic growth.” The annual growth of household consumption slowed to 0.1% in the Q4, the lowest rate since at least the Q1 of 2001. Investments were 4.6% lower than a year earlier, the third consecutive quarter of declines. The $123 billion economy's growth, already the slowest in eastern Europe, is set to lose more speed. The government estimates this year's rate will be 2.2%, the slowest in a decade, followed by 2.6% growth in 2008.
Hungary's expansion lags behind other nations that joined the EU in 2004 and this year. The Slovak economy grew 9.6% in the Q4, Czech GDP rose 5.8% and Poland's 6.4%. Of the newest members, the Romanian economy grew 7.7% and Bulgaria's 6.7%.
Gyurcsány began cutting the deficit in the face of threats that the EU would cut off aid. Monetary Affairs Commissioner Joaquin Almunia in October issued a final warning to the government to comply with the bloc's fiscal regulations. While the EU endorsed Hungary's deficit-cutting plan, its executive arm warned that slower-than-forecast economic growth after next year may hurt the program. „The budgetary outcomes could be worse than targeted,” the European Commission, the EU's Brussels-based executive body, said in a ruling on February 7. „Lower-than-projected GDP growth in the outer years could lead to a higher deficit.” Consumer confidence dropped to minus 52 in December, the lowest since the index was introduced in 1996, market research company GKI said. (Bloomberg)