Country Report Hungary June 2009

Outlook for 2009-10

• The Economist Intelligence Unit expects the Hungarian Socialist Party (MSZP) to remain in office as a minority government until the parliamentary election in 2010, with support from the SZDSZ-Hungarian Liberal Party (SZDSZ).
• The new prime minister, Gordon Bajnai, has promised to make further deep cuts in fiscal spending and to implement structural reform.
• The new cabinet will aim to keep the public finances in check so as to guarantee a steady flow of funding from the multilateral agencies and ensure that investors do not lose confidence.
• 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 3.3% in 2009 and to 2.9% 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

• Mr Bajnai passed the first hurdle of his premiership in May, when he managed to push through parliament cuts in pensions and social spending.
• The government plans to make further moves towards introducing wealth-based taxation in 2010. As part of this policy, it is considering introducing a property tax.
• Other planned tax changes in 2010 include cuts in the rate of personal income tax and a widening of the bracket for the lower rate.
• Prominent figures in the opposition Fidesz-Hungarian Civic Union (Fidesz) have made pledges that the party will repeal important reform measures aimed at crisis management if, as expected, the party wins office in 2010.
• The IMF and the EU have agreed to allow Hungary's budget deficit target for 2009 to rise to 3.9%, from a target of 2.9% currently.
• Real GDP contracted by 6.5% in the first quarter of 2009, according to initial estimates. Although an expenditure breakdown is not yet available, a host of accompanying data indicate that the decline was broad-based.
• Inflation picked up to 3.4% in April, from 2.9% in March, owing to the weakness of the forint.

This report covers the following industry codes:
SIC Code: 60;15;39
NAICS Code: 52;23;31