Country Report Hungary October 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 weaken 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

• Support for Fidesz has slipped in recent months, with the party losing as many as 800,000 voters since the peak of its popularity in mid-year.
• Mr Bajnai and his Slovak counterpart, Robert Fico, met in September in an attempt to iron out differences regarding the treatment of the Hungarian minority in Slovakia.
• The Executive Board of the IMF has extended by six months the stand-by arrangement for a loan facility granted to Hungary in November 2008. Funds may now be rephased and drawn until October 2010.
• The National Bank of Hungary (NBH, the central bank) cut its policy interest rate by 50 basis points in September, to 7.5%, continuing a monetary easing cycle that began in July.
• The NBH has submitted a proposal to the Ministry of Finance to regulate commercial banks' lending practices.
• The current account posted a sharp adjustment in response to the domestic and global recession. The current account swung into surplus in the second quarter of 2009, bringing the first-half deficit to Ft20bn (US$97.5m).

Source: Country Report