Country Report Hungary January 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).
• 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 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 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 set to average around 4% of GDP in the forecast period, as depressed domestic demand curbs imports and income debits fall.

Monthly review

• Earlier speculation regarding the viability of the prime minister's position has ended, and he will not, as some had expected, lead the MSZP's list for the June 2009 European Parliament election.
• The government has averted the threat of large-scale strikes across the public sector, scheduled for January 12th, after it reached agreement with unions on compensation for the cancellation of bonuses in 2009.
• The Hungarian parliament passed the 2009 budget bill in December 2008, targeting a deficit of 2.6% of GDP in 2009 on the EU's European System of Accounts (ESA 95) methodology.
• Hungary's latest convergence programme for euro membership envisions that the ESA 95 deficit will be 2.6% in 2010 and will fall to 2.2% by 2011.
• The National Bank of Hungary (NBH, the central bank) cut its policy interest rate twice in December 2008, by 50 basis points on each occasion, to 10%.
• Consumer prices rose by 4.2% year on year in Novemberdown from 5.1% in Octoberowing to sharp falls in energy and food prices.
• The current-account deficit rose to 2.5bn (US$3.2bn) in the third quarter of 2008, from 1.7bn a year-earlier.

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

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