Country Report Hungary November 2009

Outlook for 2010-11

• 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 prime minister, Gordon Bajnai, has promised to make further deep cuts in fiscal spending and to implement structural reform.
• The government will aim to keep the public finances in check so as to guarantee a steady flow of funding from the multilateral agencies and to ensure that investors do not lose confidence.
• The opposition Fidesz-Hungarian Civic Union (Fidesz) will capitalise on the MSZP's low popularity to win the parliamentary election in 2010 and, based on current polls, may win a sufficiently large majority to govern by itself.
• The economy is expected to remain in recession in 2010 as fiscal austerity measures curtail domestic demand. Growth is expected to recover modestly in 2011 as domestic and external demand recover.
• Annual average inflation is expected to decline gradually over the forecast period. The forint is expected to remain weak against the euro in 2010. It will begin to appreciate against the euro as the effects of the financial crisis wane.
• The current-account deficit is expected to widen from 2010 as business and consumer confidence recovers.

Monthly review

• Fidesz has repeatedly criticised the government's 2010 budget proposal. Mihaly Varga, the party's vice-president and a former finance minister, produced figures to show why Fidesz believes that the budget is not feasible.
• The Monetary Policy Council of the National Bank of Hungary (the central bank) cut the benchmark policy rate by another 50 basis points, to 7%, after its policy-setting meeting in October. This was the fourth consecutive rate cut.
• The IMF released its latest staff report on Hungary in October, in which it warned of the risks of overshooting the budget deficit targets in 2009 as well as 2010.
• The composite economic sentiment indicator (ESI) published by Eurostat rose to a one-year high of 69.1 in October, extending a trend of improvement in place since the record bottom of 33 recorded in March.
• Year-on-year drops in employment and retail sales worsened in August-September, suggesting that the slump in domestic demand is not yet easing.

This report covers the following industry codes:
SIC Code: 37;1;60;70
NAICS Code: 336;11;52;72