OECD says Hungarys economy in 2012 to contract faster than previously thought.

By bne IntelliNews May 23, 2012
Hungarys economy should contract by 1.5% y/y this year on continued decline in domestic demand, a further drop in lending and tighter credit conditions, the Organisation for Economic Cooperation and Development (OECD) said in its latest Economic Outlook published on May 22, 2012. The OECD worsened its 2012 outlook for Hungary from a GDP contraction of 0.6% expected in November. Exports, which have been the main economic growth driver, will nearly halve the speed of annual expansion to 4.8% y/y in 2012 from 8.4% y/y in 2011, but they will continue to have a positive contribution to the GDP growth. However, the exports growth will not be able to compensate a 3.1% annual contraction in domestic demand forecast for 2012. Private consumption is seen to shrink by 1.9% y/y in 2012 and government consumption is forecasted to decline by 1.7% y/y, as a result of the fiscal consolidation measures. Investments are expected to decline by 5.4% y/y in 2012, the same pace as in the previous year. The Hungarian economy will start to recover in 2013, when the GDP is forecasted to expand by 1.1% y/y, on the back of gradually improving domestic demand. Consumption will drop only marginally, while net exports will continue to determine the overall economic performance. The OECD noted it has assumed in the projections that the Hungarian authorities will soon reach an agreement with the IMF and the EU on a financial aid deal. The OECD does not expect the Hungarian government to meet targets of cutting the general government budget deficit to 2.5% and 2.2% accordingly in 2012 and 2013, since it sees the figures at 3% and 2.9%. The public debt, calculated according to the Maastricht methodology, will gradually decline to 78.8% of GDP at end-2013.

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