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MNB expects Hungary's deficit to be 4.0% of GDP

The National Bank of Hungary (MNB) expects Hungary's government deficit according to ESA to be 4.0% of GDP in 2009 after 3.8% last year, and 3.8% to 4.3% of GDP in 2010, the bank reported in its new inflation report on Wednesday. It sees a deficit of 4.3% in 2011, too.

The MNB predicted in August that Hungary's government deficit would be 3.9% to 4.1% of GDP in 2009 and 3.7% of GDP in 2010. Its prediction for 2011 did not change from August.

The International Monetary Fund (IMF) predicts 3,9% for this year, 3.8% next year and 2.8% in 2011. The European Commission sees 4.1% this year, 4.2% next year and 3.9% in 2011.

The MNB report said that Hungary could meet the government- and IMF-targeted 2010 deficit of 3.8% of GDP if the majority of the untagged reserves amounting to nearly 0.6% of GDP contained in next year's budget is not spent.

MNB's baseline projection does not include any stability reserve for 2009 as a government decision has already been adopted on its final termination, therefore, the government no longer has any substantial maneuvering room to compensate for extra spending on the expenditure side, MNB said.

Explaining the deviation of its 2010 forecast from the target set forth in the budget act, MNB said it believed that the secondary effect of the adjustment taking place within local governments, which adds to their deficit, is somewhat stronger than according to the Ministry of Finance. MNB also believes that the reduction of state railways MÁV's support is not totally effective.

Furthermore, MNB forecast lower personal income tax revenues than the appropriation featured in the budget bill. Finally, MNB believes that the expenditures of the budgetary organizations will be higher than indicated in the bill.

The deficit expected for 2011 may more substantially exceed the target despite the fact that the level of the planned effective reserves is considerably lower than in 2010. For the time being, MNB does not see the conditions for the planned deficit reduction as being in place, and it said that further fiscal balance improving measures will be necessary to attain the envisaged deficit target.

The MNB report published on Wednesday forecasts a current-account deficit of 0.5% of GDP in 2009 1.5% of GDP in 2010, compared to 2.9% of GDP this year and 3.0% of GDP next year in the bank's August report.

The MNB currently expects Hungary's external-financing capacity to be 1.5% of GDP in 2009 and 0.1% of GDP in 2010, compared to 0.9% of GDP this year and 0.6% of GDP next year in the bank's August report.

The MNB also confirmed its projections first published on Monday that the annual average consumer price inflation (CPI) should be 4.2% this year after 6.1% last year.

MNB expected 4.5% for this year in its earlier report in August.

MNB now predicts 3.9 % CPI for next year instead of 4.1% in the August report, and 1.91% for 2011 instead of 2.1% in the earlier, August report.

MNB still expects GDP to decline by 6.7% this year, but its prediction for next year, minus 0.6%, is better than the minus 0.9% predicted in the August report. It sees 3.4% real GDP growth in 2011, the same as in the August report.

The IMF still sees 0.9% decline of GDP next year after minus 6.7% this year, and 2.5% growth in 2011. The European Commission now expects GDP to fall 6.5% this year, to sink a further 0.5% next year, and growing by 3.1% in 2011.

The MNB now expects whole-economy gross average earnings to grow 0.8% this year calculated on cash-flow basis, 2,5% next year and 3,8% in 2011. It projected growth of 0.4%, 2.7% and 3.9% respectively in its August report.

It projects whole-economy employment to decline 2.7% this year and 1,2% next year. In August, MNB predicted a drop of 2,6% and 0,9% respectively. It sees turnaround only in 2011, with employment growing by 0,3%, much slower though than the 0.7% projected in its August report.

Households' real income should decline 4.1% this year and 1.7% next year, but in 2011 it might grow by 2.0%, the MNB said on Wednesday. In August, it predicted minus 4.3%, minus 1.3% and plus 2.3% respectively. (MTI-ECONEWS)