Hungary's new government should set more realistic fiscal targets and implement them rigorously, otherwise there is a risk of financial turbulence that could prove costly for the economy, the OECD said in a preliminary edition of it semiannual Economic Outlook on Tuesday.
A stronger commitment to fiscal consolidation would not only reduce short-term risks but also help growth prospects over the longer term, the report said.
As compared to the 4.7% official target, the OECD projects a general government deficit of 5.8% of GDP in both 2006 and 2007. Sustained by strong exports and domestic demand, real GDP growth is expected to strengthen somewhat further in 2006 and remain close to 4.5% in 2007. However, employment has disappointed and the unemployment rate is not projected to fall below 7%, despite moderate wage inflation, the forecast said.
Following 4.3% GDP growth in 2005, the OECD forecast 4.6% growth for 2006 and 4.4% for 2007. The OECD puts Hungary's current account deficit at 7.7% of GDP in 2006 and 7.3% of GDP in 2007. It expects gross fixed capital formation to accelerate from 6.6% in 2005 to 7.1% in 2006 and 7.0% in 2007.