The Hungarian government has reduced its GDP forecast for 2008 from 2.8% in the updated convergence program to 2.4%, Finance Minister János Veres said.At the same time, the government raised the official forecast for consumer price inflation for 2008 from 4.8% to 5.9%, Veres said.
Hungary's GDP growth slowed to 1.3% in 2007 from 3.9% in 2006. The economy expanded a sluggish 0.8% in Q4 2008, slowing from 3.7% in the same period a year earlier.
Hungary's twelve-month consumer price inflation picked up from 2.3% in May 2006 to peak at 9.0% in April 2007. CPI was still a high 7.4% by December. Annual average inflation more than doubled from 3.9% in 2006 to 8.0% in 2007. January-February CPI remained high at 7.0%.
Veres attributed the lower growth forecast to external factors, including the falling growth rate in the EU and the US, as well as scarce liquidity on global markets. The 2008 GDP growth forecast for the eurozone was lowered from 2.2% to 1.8% in February and the area's 2008 inflation forecast was raised from 2.1% to 2.6%, Veres noted.
The general government deficit target for 2008, calculated with EU methodology, remains unchanged at 4.0% of GDP, Veres said. He added that tax cuts planned for 2009 would not threaten the government's 3.2% of GDP deficit target for the year.
Veres said a sharp rise in yields of Hungarian government securities, a drop in revenue from health care co-payments and tuition fees, which were scrapped after a referendum on March 9, and developments on global financial markets would cut tax savings expected from the 2009 tax cuts by Ft 100 billion from the originally planned Ft 200 billion – Ft 250 billion.
The higher inflation projection will obviously raise central budget revenue from taxes and contributions, but it will also raise expenditures, pushing up pension costs alone by some Ft 30 billion, Veres said.
The government lowered its projection for export growth in 2008 from 12.9% to 11.5%.
It raised the projection for gross wage growth in 2008 from 5.2% to 6.3%. The projection for real wage growth was left unchanged at 0.4%.
Analysts asked by MTI said the government's new projections for 2008 GDP growth and inflation, announced on Wednesday, are more realistic.
“The government has changed its projections to a more realistic level,” said Erste Bank analyst Orsolya Nyeste.
ING Bank's Dávid Németh said that, although the inflation projection is in line with market forecasts, the GDP growth projection is still more optimistic than the market outlook. (MTI-Econews)