Morgan Stanley downbeat about Hungary's economy, suggests IMF support.

By bne IntelliNews October 20, 2011
Hungary's economic recovery is unstable and a support package from the IMF would help reassure markets and preserve growth, portfolio.hu cited Pasquale Diana, analyst of Morgan Stanley. The positive dynamics of Hungary's economy result mostly from the investments in the auto industry, if not for them the economy would face recession in the coming quarters, Diana stated after visiting Budapest. The slowing down growth will result in budget tightening, while the planned higher revenue from tax hikes will deepen the pro-cyclical effects of the implemented policy. Although assessing the positive signs of government's firm decision to keep the budget deficit to the 2.5% target in 2012, the analyst considers a budget gap of 4% of GDP as more realistic. He criticised the tardy reform in public transportation and disability pension payments and expressed concerns about the effectiveness of the early loan repayment scheme, especially taking into account the negative welcome it received form economist in the country and abroad. Despite the forint depreciation, Diana expects no rate hike and emphasised the high stock of international reserves, which gives the central bank room for manoeuvre. Taking into account the relatively downbeat expectation, an IMF support package in the form of stand-by arrangement or precautionary credit line will strengthen Hungary's position the analysis also says. The trouble with the introduction of such a support programme is the political unwillingness to take part.

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