GKI continues to expect Hungarys economy to contract by 1.5% in 2012.

By bne IntelliNews March 6, 2012
Think-tank GKI has kept unchanged its forecast for Hungary's economy that it expects to contract by 1.5% this year, GKI said in its latest report. The expected recession in Europe will have a negative effect on Hungary's economy, as the exports growth is seen slowing down to 10% y/y from 11.7% in 2011.The country's outlook has further deteriorated after the collapse of flag carrier Malev and on the closure of Nokia's plant. Domestic demand will drop significantly in 2012. Household consumption is projected to fall by 2.5% on the year due a 3.5% decrease in real wages, stagnation of employment and a decrease in social benefits. Investments activity is expected to decline by 4% y/y due to legislative and economic uncertainness. GKI projects consumer prices to grow by 5% y/y on average in 2012, accelerating from 3.9% estimated for 2011. Referring to the fiscal policy, GKI remains pessimistic that government will manage to keep the budget deficit below 2.5% of GDP in 2012 and it sees the gap at 2.9%. Fiscal consolidation requires adjustments totalling between HUF200bn and HUF300bn in 2012. GKI said that the delay in the start of financial aid talks with the IMF and the EU would cause another shock in the country's financial assessment.

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