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Takarékbank analysts expect Hungary's GDP to drop 5.9% this year

Magyar Takarékbank analysts said the GDP of Hungary dropped 6.7% in H1 and expect the country's GDP to decline 5.9% in 2009 before growing 0.4% in 2010, the bank said in a report sent to MTI said.

Tax rises will push average inflation above 5% this year but the base rate could still drop to 8% by the end of 2009, the bank projected.

Takarékbank also expects Europe's economy to show slight growth beginning in H2 2009.

Analysts expect a 12.6% contraction in exports and 14.8% decrease in imports in Hungary for 2009, with both figures improving next year to an export growth of 3.5% and import growth of 3.2%.

Twelve-month inflation rose to 3.7% in June from 2.9% in March, but most of the increase was due to one-off factors, the bank's analysts said. VAT and excise tax rises would in itself increase twelve-month inflation by 4 percentage points but they would add only 3 percentage points due to weak demand caused by the recession. Takarékbank said the pressure of inflation will be somewhat eased by lower employee tax contributions and the likely decrease of gas prices too. The analysts project 7.3% inflation by the end of 2009 and an annual average rat slightly above 5% for the whole year.

The inflationary effect of government measures will no longer be part of the base by H2 2010, so next year's inflation could come in at 3.5%.

The report said that the temporary increase in inflation will not prevent the National Bank of Hungary from slowly cutting the base rate. A 50bp cut expected on Monday might be followed by similar measures in the coming months, resulting in an 8% base rate by the end of the year, Takarékbank projected.

The bank said Hungary's government will be able to deliver this year's deficit target of 3.9% of GDP and next year's deficit target of 3.8% of GDP. (MTI – Econews)