Hungary’s economy could pullout of a slump this year, though growth will remain sluggish in the first half and especially in the first quarter. Inflation will fall, but slowly; and real wages will inch up; but the country’s internal and external balances will continue to improve markedly, the latest projection by economic think tank GKI reveals.
GKI says GDP growth will pick up to around 3% in 2008, leaving Hungary well behind other new EU member states in the region. The acceleration in Q1 growth will be hardly noticeable, and the expected expansion in the farm sector - following a contraction because of drought - will be seen only from the summer months. GKI expects building sector growth - boosted by EU development funding -- to speed up only from the beginning of summer as well.
GKI projects industrial growth to remain at the slower 5-6% rate seen in the last months of 2007 as demand falls on foreign markets. A pickup in domestic demand, resulting mainly from an increase in investments, will have only a limited counter-effect on slowing industrial exports. Despite the pessimistic forecast, GKI still sees industrial exports remaining the motor for Hungary’s economic growth, though it notes growth in the business services segment will continue to be marked. GKI says the transport segment will be unable to match its big expansion in 2007 helped by the accession of Romania and Bulgaria this year. Though the financial sector will be boosted by growing demand to co-finance EU-funded projects.
GKI projects export growth will slow from 15.7% in 2007 to 10% in 2008. It sees import growth also slowing slightly, from 11.9% to 10%. As a result, Hungary’s trade deficit, which has narrowed for years, is expected to remain unchanged, or widen slightly, to around €700 million. The surplus on services could slightly grow but the deficit on income transfers could also grow, and the current-account deficit will stay at around €5 billion, level with 2007, the researchers project. GKI forecasts Hungary’s external financing requirement will drop to €3.2 billion in 2008 or 3% of the GDP as EU funding from both the 2004-2006 and the 2007-2013 periods are paid out.
GKI puts 2008 average annual inflation around 6% after rising to 8% last year, though it sees twelve-month year-end CPI slowing to 4.5%. It puts the average forint per euro rate around 253 in 2008. GKI says real wages will inch up 0.5-1% in 2008, though they will stagnate in the public sector as gross wages there rise 7%, but private sector gross wages climb 8%, slightly slower than in 2007. (MTI-Eco)