Country Report Hungary March 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 a 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% in 2009 and 2.7% in 2010 as commodity prices fall and domestic demand falters.
• The current-account deficit is set to average around 3.7% of GDP in the forecast period as depressed domestic demand curbs imports and as income debits fall.

Monthly review

• Hungarian political parties are in the process of finalising their nominations for the European Parliament elections in June.
• The IMF has stated in its first review of Hungary's arrangement for a US$25bn stand-by financing package that the Hungarian authorities have implemented the policies specified as part of the agreement.
• Details of the government's plans to restructure the tax system, as well as pensions and social spending, were unveiled in mid-February. The proposed measures do not contain substantive cuts in government spending.
• Hungary is considering extending its Ft600bn (US$2.86bn) bank bail-out package to the end of 2009.
• The National Bank of Hungary (NBH, the central bank) left its policy interest rate on hold at 9.5% in February, bringing to a halt a rate cut cycle that started in November.
• The economy contracted by 2.3% year on year in the final quarter of 2008. This reduced real GDP growth for the year to just 0.5%.
• The marked declining trend in inflation continued into January, with headline consumer price inflation falling to 3.3%.

Source: Country Report