Fourth-quarter GDP data published early Friday show Hungary entered a recession in the H2 of 2008, analysts told MTI. In spite of the contraction and falling inflation -- revealed by January CPI, also published Friday -- the National Bank of Hungary is unlikely to continue its campaign of rate cuts in February, they added.
Hungary’s GDP fell a calendar-year adjusted 2.1% in Q4 from the same period a year earlier, the Central Statistics Office (KSH) said. The quarter-on-quarter drop reached 1.0%, following a 0.5% fall in the previous quarter. KSH said twelve-month consumer price inflation slowed to 3.1% in January from 3.5% in December.
Raiffeisen Bank’s Zoltán Török said Hungary’s economy went into recession in the H2 of 2008, according to the textbook definition of two consecutive quarters of negative growth.
The recession comes as little surprise, considering the downturn in industrial output, investments and exports, as well as the slowdown in Germany, which is Hungary’s biggest export market, he added.
Hungary’s GDP could fall as much as 5% in H1, but the outlook for the global economy in H2 is more optimistic, which could limit the contraction in Hungary to 3.5% for the full year. In 2010, GDP is likely to be flat, because the government must continue to cut budget expenditures and cannot afford an economic stimulus package, Török said.
Even if the government raises the VAT rate, annual average inflation will still probably fall to 3%, he said. Regardless, the central bank is unlikely to cut rates further in February because of the weak forint and Hungary’s high risk rating. The rate reductions could continue later in the year and reach 6% by year-end.
ING Bank’s Dávid Németh said the drop in Q4 GDP was bigger than expected and put the full-year contraction at 3% or more. If a leaked government plan to raise VAT and excise tax rates materializes, average annual inflation could rise over 3% in 2009, even reaching 3.4%, he said. This would give the central bank less room to cut rates.
The MNB’s Monetary Council is unlikely to cut rates at its next meeting on February 23, but will probably wait until the HUF/EUR exchange rate stabilizes around 290, Németh said. In 2010, average annual CPI could rise over 4%, he said.
The weaker forint does not endanger the disinflationary process for the time being although it could slow the drop of inflation, Takarékbank said in a research note on Friday. Therefore inflation prospects do not pose an obstacle for further rate cuts. The National Bank must, however, continue to consider the aspect of financial system stability, the bank added.
Takarékbank expects the economy to contract by close to 5% in the first half and projects recession to ease in the second half of the year. A 3 percentage-point rise in the VAT rate and 5% rise in excise tax could add 2% to H2 inflation, pushing up annual average inflation by around one percentage points, to 3.3-3.4%. (MTI-Econews)