Country Report Hungary December 2008

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 external support from the SZDSZ-Hungarian Liberal Party (SZDSZ).
• The position of the prime minister, Ferenc Gyurcsany of the MSZP, has been strengthened in the short term by the financial crisis, but he could face an internal leadership challenge before the general election in 2010.
• The renewed effort by the government to keep the public finances in check in return for financial support from multilateral agencies means that budget deficits will remain below 3% of GDP in 2009-10.
• Real GDP is forecast to contract in 2009 as further austerity measures hit domestic demand and as a recession in the euro area curbs exports. The economy will return to positive growth in 2010 as the euro zone recovers.
• Average annual inflation is forecast to fall to 3.5% in 2009 and to 2.7% in 2010 as commodity prices fall and domestic demand falters.
• The current-account deficit is forecast to fall as a percentage of GDP in 2009-10 as depressed domestic demand curbs imports and income debits fall.

Monthly review

• The MSZP's opinion poll ratings improved significantly in October, as a result of its perceived success in managing the financial crisis.
• The government has developed a Ft600bn (US$3bn) support package for the country's banks, to be funded from the US$25bn credit line provided to Hungary by the IMF, the EU and the World Bank.
• Hungary drew on the first, 4.9bn (US$6.9bn), tranche of a 12.3bn stand-by loan from the IMF in mid-November, but it has not yet used any of the funds.
• Parliament passed legislation in November to impose a cap on budget spending, prevent an increase in the country's external debt and establish a three-person budgetary council to oversee budget performance.
• Following measures to address the effects of the intensification of the global financial crisis, the government put together a stimulus package to boost the economy in an effort to counter the adverse impact of an global slowdown.
• In a surprise move, the National Bank of Hungary (NBH, the central bank) cut its policy interest rate by 50 basis points at its meeting in November, to 11%.
• Real GDP growth was a modest 0.8% in the third quarter of 2008, according to unadjusted first-estimate figures from the statistical office.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;60
NAICS Code: 22;52