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OECD sees Hungary GDP falling 0.6% in 2012

The Organisation for Economic Cooperation and Development (OECD) projects Hungary’s economy will contract by 0.6% in 2012 in its fresh Economic Outlook published on Monday.

Hungary’s government recently said it expects the economy to grow 0.5%-1% in 2012, under the 1.5% growth projection in the budget bill.

Asked by MTI on Monday, the National Economy Ministry confirmed the expected growth and said it would not make a concrete projection for the time being. A review of domestic or foreign financial resources for investments that could produce bigger growth must be reviewed in the framework of a new growth plan, it added. 

The OECD said the "mild recession" in 2012 would result from a fall in business and consumer sentiment, tight bank lending and financial conditions, ongoing deleveraging of the corporate and household sectors and major fiscal consolidation.

"Strengthening the credibility and predictability of domestic policies, notably through an agreement with multilateral organisations, is of utmost importance to regain investors’ confidence, cushion the effects of fiscal consolidation on activity and return to sound growth," it added.

Hungary’s government recently said it is seeking financial assistance from the International Monetary Fund and the European Union as a precautionary measure.

Asked by MTI, the National Economy Ministry said talks with the IMF would start as soon as the fund’s delegation arrived in the country. 

The OECD puts Hungary’s general government deficit at 3.4% of GDP in 2012, well over the government’s 2.5% target.

For 2011, the OECD puts Hungary’s GDP growth at 1.5% and it sees the country’s general government running a 4%-of-GDP surplus, including the transfer of private pension fund assets to the state earlier in the year.

The OECD sees Hungary’s state debt, under the Maastricht definition, reaching 84.2% of GDP in 2011, 85.1% in 2012 and 85.9% in 2013.

The budget bill, submitted to Parliament at the end of September, tentatively projected the 2012 state debt ratio at 71.8%, down around one percentage point from the end of this year.

The Maastricht debt ratio fell on the withdrawal of government securities received in the private pension fund portfolio to 76.7% at the end of June but rose back to a preliminary 82% at the end of September, with about two-thirds of the rise reflecting the weakening of the forint and one-third coming from new debt issues.