Govt raises 2013 CPI projection to 5.2% in light of new fiscal measures

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Hungary's government has raised its projection for consumer price inflation next year to 5.2% from 5.0% in light of a new round of fiscal measures, a supplement to the Excessive Deficit Procedure (EDF) report on the steps published on the government's website on Thursday shows.

National Economy Minister György Matolcsy announced on Wednesday an additional HUF 367 billion of fiscal adjustments that aim to end the European Union's EDF against Hungary and ensure the country can avail of its full Cohesion Fund allocation.

The government said the inflationary effects of higher corporate costs resulting from the new measures - such as the reversal of a reduction in the bank levy, a higher duty on financial transactions and the extension of a utilities tax to wires and pipelines - would outweigh the disinflationary effects of a prolonged output gap.

The projection for GDP growth in 2013 was lowered - as announced by Matolcsy on Wednesday - to 0.9% from 1.0%. The projection for growth in 2014 was knocked down to 2.0% from 2.5%.

Investments are set to fall 1.0% in 2013, compared to the previous forecast for stagnation. They are seen edging up 0.3% in 2014, under the 1.2% rise forecast earlier.

The projections for export growth were lowered to 6.2% from 6.6% for 2013, and to 6.4% from 6.8% for 2014.

The forecasts for import growth were lowered to 4.5% from 5.1% for 2013, and to 5.3% from 5.4% for 2014.

The government changed its projection for the decline in household consumption next year to 0.5% from 0.2%. It also lowered its projection for a rise in household consumption in 2014 to 1.0% from 1.3%.

The number of employees is now forecast to grow by 0.7% next year, rather than by 0.9% in the original EDF report published on October 5, and is seen to rise by 1.3% in 2014 rather than by 1.5% as originally projected.

The government now sees the unemployment rate dropping less from an estimated 10.9% this year, reaching 10.8% in 2013 and 10.7% in 2014, up from the earlier respective forecasts of 10.7% and 10.5%.

The revisions in the projections could worsen the budget balance by the equivalent of about 0.1% of GDP, an amount that can be "safely covered" by the raised level of the Country Protection Fund, according to the report.

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