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Hungary to see growth in H2 2010, deficit on track

Hungary's economy will post annual growth again from mid-2010 helped by tax cuts and a revival of export markets but the crisis is not over until unemployment starts to ease, Prime Minister Gordon Bajnai said.

One day after parliament approved the 2010 budget, a key condition of the country's financing deal with international lenders, Bajnai told Reuters the deficit target of 3.8% of gross domestic product (GDP) was ambitious but achievable, barring major unexpected negative changes in global conditions. He said the budget had reserves worth around 0.8% of GDP which should be sufficient to offset any foreseeable risks of overshooting in the deficit.

The central bank and some analysts have warned the deficit could exceed the target while the main opposition party Fidesz said the government has skeletons in the closet which could boost the gap above 7% after elections due next year.

Bajnai said the fiscal adjustment, value added tax hike and wage cuts have deepened the recession this year by cutting domestic demand, but due to a reduction in employment related taxes, mainly income tax and social security contributions, Hungary is becoming more competitive for investment again. (Reuters)