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Implementing credible structural measures next step for Hungary, says OECD

Implementing credible structural measures to consolidate Hungary's public finances is the next step necessary to foster market confidence and pave the way to sound growth, the OECD said in its economic forecast published on its website on Wednesday.

The report called the early spring publication of a program by the government outlining the main goals for structural reforms "a step in the right direction".

The OECD forecast Hungary's GDP growth at 2.7% in 2011 and 3.1% in 2012, adding that there could be a major, 2.6%-of-GDP general budget surplus this year, but deficit exceeding the 3% EU limit in 2012.

The organization expects the economic recovery in Hungary to continue, and to be driven mainly by inventory accumulation and external demand. Domestic demand will also improve gradually and will support growth.

The report also forecasts headline inflation to moderate towards the central bank's 3% medium-term target once the effects of higher global commodity prices fade.

"Dissolving the second pillar of the pension system will lead to a dramatic, but one-off, improvement of the general government balance in 2011, despite a fiscal relaxation induced by tax cuts and spending overruns", OECD said. Next year, it expects a general government deficit of 3.3% of GDP.

The forecast of OECD is different from the government's predictions, which envisage a general government surplus of 2% for 2011, and a deficit of 2.5% in 2012, falling to a deficit of 1.5% by 2015 in the updated convergence program published in April.

The government sees economic growth of 3.1% this year and 3.0% in 2012 according to its conservative estimate and 3.2% this year and 3.6% next year according to its dynamic estimate.

The European Commission put Hungary's GDP growth this year at 2.7% and 2.6% next year in its recently published European Economic Forecast Spring 2011. It expected a general government surplus of 1.6% this year and a 3.3% in 2012.