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Pénzügykutató projects 5%-6% economic contraction in 2009

Economic think tank Pénzügykutató projects Hungary's economy will contract 5%-6% in 2009, chief analyst Mária Zita Petschnig said.

GDP will drop not only in real terms, but in nominal terms, which is unprecedented, Petschnig said.

Pénzügykutató sees investments falling 8%-9%, household consumption dropping 4%-5%, real wages declining 2%-3% and industrial output slipping back more than 10%. It puts the year-end central bank base rate at 8.50%, down just 100bp from the current rate, and it projects a HUF/EUR exchange rate of 285. The unemployment rate is expected to be 10.5%-10.9%, as the number of employed drops 4%-5%.

Pénzügykutató puts average annual inflation at 3.9%, though twelve-month CPI in December could pick up to 5.7%. The projection takes into account a planned excise tax rise and an increase in the main VAT rate, Petschnig said, noting upward risk for the projections.

Pénzügykutató sees Hungary's external financing need dropping to 4.2% of GDP from 7.2%. But whether or not the government's general government deficit target can be met is still a big question, Petschnig said. The government recently raised the target to 2.9% of GDP from 2.6%, but Pénzügykutató calculates the state is still HUF 250 billion short of reaching the goal, even if the VAT and excise tax increases generate an additional HUF 75 billion in budget revenue. HUF 250 billion is about 0.9% of GDP, a degree of deviation the IMF would not allow, she said.

Pénzügykutató projects the farm sector will contract buy just 2%-3% in 2009, as the weaker forint makes domestic products more attractive to consumers. (MTI – Econews)