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Hungarian economy slows as eurozone preparations bite

The Hungarian economy showed signs on Friday of sharp slowing in response to austerity measures to prepare for entry into the eurozone.

Export performance improved but household consumption fell in response the tax increases and cuts in subsidies. The economy grew by 2.8% in the first quarter of 2007 from output 12 months earlier, the central statistics bureau KSH said, compared with growth of 4.0% in the whole of 2006. Hungary's economy grew by 3.6% over 12 months to the fourth quarter of last year, and by 0.7% compared to the July-September period. But in the first quarter of this year, gross domestic product grew by 0.6% from performance in the previous quarter, KSH said.

Growth in the first three months of 2007 was supported by increased industrial production, up 9.1%, which contributed to higher exports, up 17.6%, KSH said. But the economy grew more slowly because of lower household consumption, down 0.8%, resulting from a government austerity package aimed at reining in the highest public deficit - 9.2% of GDP in 2006 - in the European Union, the bureau said. Tax increases and cuts in subsidies, especially in the energy sector, were factors in the reduction of household consumption. The austerity package is part of the Socialist-led coalition government's plan to meet eurozone criteria on the deficit, national debt and inflation by 2009, with the projected adoption of the euro set for 2013. (