Country Report Hungary May 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.
• 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 3% in 2009 and 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

• Gordon Bajnai, hitherto the minister of national development and economy, was sworn in as the new prime minister on April 14th, to lead an expert government established for crisis management.
• Ten of the 16 government ministers from the outgoing cabinet remain in the new one, and eight have leadership functions within the MSZP.
• The government's programme targets Ft1.3trn (US$5.9bn) in spending cuts and a tax reshuffle over the next year. Details of the programme have been released, but legislative proposals have yet to face a parliamentary vote.
• Cost-cutting measures announced should ensure a large surplus in the second half of the year, which will make it possible to meet the deficit target at below 3%, even accounting for a 6% contraction in GDP.
• The new cabinet is making efforts to communicate the necessity of reforms to the public, but is also stressing the expected benefits stemming from taxcuts.
• A Russian oil firm, Surgutneftegaz, acquired a 21.2% stake in MOL, a Hungarian oil and gas group, from OMV (Austria).
• Consumer price inflation continued to decline in March 2009, to 3.2% year on year, from 3.3% in February, with month-on-month inflation a mild 0.5%.

Source: Country Report