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Hungary growth to remain subdued in 2011 - GKI report

Economic think tank GKI has released its latest snapshot of the Hungarian economy. Only moderate changes are in store for the rest of 2011, says the market researcher.

The negative effects of the European debt crisis have eased, says the report, as a result of the latest Greek rescue package. However, Europe, including Hungary, is still in danger.

In Q1 2011 the Hungarian economy grew by 2.5%, but is not expected to be higher in the rest of 2011. Owing to the decline in European demand, Hungarian exports will grow less rapidly than before.

Due to relatively favourable weather conditions, agricultural production, will increase significantly. Its growth rate remains dynamic in 2011.

In construction recession is continuing due to the lack of demand. Housing construction will decline further, by around 30% in 2011, due to the lack of demand and the shrinking credit sources available to real estate developers.

Retail sales stagnated in the first half of 2011. Household consumption will increase by about 1% in 2011. Investments will grow by about 1% in 2011.

Demand for domestic business services also stagnated, and it is not expected to pick up in the second half of the year.

The only dynamic sector will be the automotive industry. 

Gross earnings will increase by 4%, resulting in an average rate of increase of 2.5% in real earnings. The unemployment rate will decline slightly in the second half of the year.

Consumer prices were 0.2% lower in June than a month earlier. Thus inflation has been tamed, thanks to primarily the weakening upward pressure on food prices.

The exchange rate of the forint against the euro did not change much; however it weakened considerably vis-à-vis the Swiss franc. The official rate of the central bank is likely to remain unchanged this year. An increase of this rate would not be justified by inflation, whereas its reduction is still impossible due to concerns about the European debt crisis.