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OECD sees Hungary economy contracting at faster clip than gov't

The OECD sees Hungary's GDP falling by 6.9% in 2009 and 1.0% in 2010, slightly more than the respective 6.7% and 0.9% drops forecast by the government, the OECD's latest Economic Outlook published on Thursday shows.

The OECD projects Hungary's economy will start growing again, by 3.1%, in 2011.

The OECD put Hungary's general government deficit at 4.3% of GDP in 2009 and 4.1% in 2010, also slightly over the respective ESA95 government targets of 3.9% and 3.8%. The OECD expects the deficit to narrow to 3.6% of GDP in 2011.

“To maintain investor confidence, it is crucial that the government sticks to the newly adopted medium-term fiscal framework and supports the efforts of the new fiscal council,” the OECD said.

The Fiscal Council is an independent body recently established by the government to issue opinions on budget bills.

A tight fiscal policy, introduced in part to meet conditions for a €20 billion IMF-led financial support package, have boosted investor confidence, caused the forint to firm and provided room for rate cuts, the OECD said. “Scope for further easing will be determined by the credibility of continued fiscal consolidation and conditions in global financial markets,” it added.

If the fiscal easing usual in earlier election years is not repeated in 2010, the planned fiscal tightening is expected to curb domestic demand, OECD said. It projects private consumption will fall 7.8% in 2009 and 5.3% in 2010, before rising 1.2% in 2011. It sees government consumption staying flat in 2009, then falling 0.9% in 2010 before rising 1.0% in 2011.

Exports are set to decline 11.2% in 2009, but rise 6.0% in 2010 and climb 7.0% in 2011. Imports are likely to plunge 18.1% in 2009, before rising 3.0% in 2010 and 1.3% in 2011.

The OECD says the current-account balance will widen to 1.8% of GDP in 2010 and 2.6% in 2011 after dropping sharply to 1.6% in 2009.

Hungary's CPI is seen falling from 4.5% in 2009 to 4.0% in 2010 and 3.0% in 2011.

The OECD expects Hungary's unemployment rate to reach 9.9% in 2009 and continue to rise to 10.3% in 2010 before falling back to 9.3% in 2011. (MTI-Econews)