Country Report Hungary September 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 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 to 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 4.8% in 2009 and 4.2% 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

• Tensions between Hungary and Slovakia intensified in August, when Slovakia in effect refused entry to the Hungarian president, Laszlo Solyom.
• The government is preparing to tighten regulations in order to increase the transparency of top-level employment contracts at state-owned firms or local municipalities.
• The National Bank of Hungary (NBH, the central bank) cut its policy interest rate by 50 basis point in August, to 8%.
• In its August inflation report, the NBH left its GDP forecast unchanged??