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Hungary's GDP should grow in H2

Hungary's economy should start growing again in the second half of 2010, with the annual figure likely to finish at around zero, the majority of the economic researchers asked by MTI said on Monday.

Hungary's GDP fell by 6.5% in 2009, according to three of the research institutes polled, while one, Ecostat, forecast a 2009 decline of 6.3%. The forecast of the government and of the National Bank of Hungary (MNB) is for a decrease of 6.7% and that of the Budget Council is for a fall of 6.2%.

The fall in Q4 last year was likely around 4%-5% year-on-year, though the economy has already started to grow in quarter-on-quarter terms, GKI Gazdaságkutató Chairman András Vértes told MTI. Hungary's GDP will probably not grow this year on average, but should start expanding year-on-year in H2, Vértes said.

Hungary's Q4 GDP last year should likely have equaled that of Q3, Kopint-Tárki CEO Éva Palócz said. According to Kopint-Tárki's downwardly revised forecast, a 1%-2% year-on-year decline is to be expected in H1 this year, followed by growth of 1%-2% year-on-year in H2.

Somewhat more optimistic is Pénzügykutató, which expects 0.5% GDP growth for the whole of this year. “Hungary's economy came out of 2009 worse than the rest of the EU because of its strong export orientation, therefore when the EU's imports start growing, that will heal Hungary's economy as well,” Pénzügykutató chief economist Mária Zita Petschnig said.

GDP should still fall 0.3% this year, according to the latest prognoses of Ecostat, which expects a smaller, 6.3%, decline from last year than the rest of the institutes.

The government and the MNB forecast a GDP decline of 0.6% for this year in line with EU and IMF expectations, while the Budget Council expects a fall of 0.5%.

OECD expects a 1.0% decline of Hungary's GDP in 2010.

Hungary's accrual based, ESA-95 general government deficit should be between 3.8%-4.3% of GDP this year, according to the four economic research institutes polled by MTI.

GKI Gazdaságkutató expects a deficit of 3.8%, in line with the forecast of the government and that of the IMF. Pénzügykutató expects a deficit of 3.9%, while Ecostat forecasts a deficit of between 3.8-4.0% and Kopint-Tárki predicts a deficit of 4.3%, in line with the MNB's worst-case scenario. The Budget Council reckons that a deficit of 3.8% is achievable.

The researchers added that if Hungary's next government following the elections scheduled for this spring prepares a new budget, the deficit could grow significantly. Mária Zita Petschnig does not rule out even a deficit of 7.5%, adding that investors would probably not tolerate such a high number.

András Vértes said that the next government can choose from three kinds of budget policies, one of those being one which would result in an overall deficit of 7.0%-7.5%. “This is out of the question“, Vértes commented, adding that such a deficit would not be accepted by either the relevant international organizations or investors.

Another acceptable path could be the consolidation of state-owned companies combined with structural reforms, resulting in an overall government deficit of 5.0% in 2010 and 4.0% in 2011, Vértes said.

The best, however, would be the consolidation of the state combined with structural changes, reforms and significant tax cuts, which would augur an overall deficit of 5.0% or more for a short period, though would shrink the deficit to 3.0% from 2011, which could result in the in the introduction of the euro in 2014, the chairman of GKI Gazdaságkutató told MTI. (MTI-ECONEWS)