Country Report Hungary April 2009

Outlook for 2009-10

• The Economist Intelligence Unit expects the Hungarian Socialist Party (MSZP) to remain in office as a minority government throughout the forecast period, with support from the SZDSZ-Hungarian Liberal Party (SZDSZ).
• A new prime minister, Gordon Bajnai, hitherto the minister of national development and economy, is likely to be approved by parliament in mid-April. MrBajnai has promised to make further deep cuts in fiscal spending and to implement structural reform.
• Renewed efforts by a new cabinet to keep the public finances in check in return for financial support from multilateral agencies mean that budget deficits will remain below 3% of GDP in 2009-10.
• Real GDP is forecast to contract sharply in 2009 as further austerity measures hit domestic demand and recession in the euro area curbs exports. The economy is expected to remain in recession in 2010.
• Annual average inflation is forecast to fall to 2.8% in 2009 and to 2.7% in 2010, as international commodity prices fall and domestic demand falters.
• The current-account deficit is set to average around 3% of GDP in the forecast period, as depressed domestic demand curbs imports and as income debits fall.

Monthly review

• Ferenc Gyurcsany offered to step down as prime minister in March, stating that a new leader would facilitate broader consensus, which is needed to manage Hungary's crisis more effectively.
• Ildiko Lendvai, an MSZP veteran and one of the party's most prominent figures, has been chosen as leader of the MSZP.
• Economic policy will be substantially tightened under the leadership of the new prime minister, and preliminary estimates envision cuts of Ft300bn (US$1.4bn) in 2009 and of Ft850bn-900bn in 2010.
• The National Bank of Hungary (NBH, the central bank) has started to convert net current and capital transfers from the EU on the foreign-exchange market.
• The NBH kept interest rates at 9.5% at its March meeting, owing to concerns about currency weakening and the need to maintain financial stability.
• Economic performance indicators for January painted a bleak picture, signalling the onset of a deep recession. The industrial sector, which is heavily export-oriented, saw output fall by nearly 23% year on year in January.

Source: Country Report