The Organisation for Economic Cooperation and Development (OECD) said that Hungary's economy will be in deep recession throughout 2009 before picking up slowly in 2010.
The OECD report said that Hungary's unemployment rate is likely to reach double-digit figures during this period, forecast at 10.7% in 2009 and 11.7% next year. Consumer-price inflation is likely to rise due to the July 1 increase in VAT and excise taxes and the recent weakening of the forint. OECD said that implementing sustainable fiscal consolidation is necessary to boost investor confidence in Hungary and make it possible for the National Bank of Hungary to cut interest rates.
The organization stated that maintaining deficit objectives through further cuts would amplify this cycle. The OECD said that Hungary's government should adhere to nominal expenditure targets while strengthening the medium-term expenditure framework in order to foster credibility in fiscal consolidation.
This, together with a shift from direct to indirect taxation, would likely increase Hungary's growth potential, the organization concluded. OECD put general government deficit at 4.2% of GDP equally for this year and 2010. (MTI - Econews)