Think-tank GKI keeps Hungarys 2012 GDP forecast, raises inflation outlook.

By bne IntelliNews June 27, 2012
Economic think-tank GKI continues to expect Hungarys economy to contract by 1.5% y/y this year saying the countrys GDP trends are the most unfavourable in Europe after Greece and Portugal, according to GKI latest report published on June 26. GKI said that that income and coumption of households are decreasing, while investments are plummeting. Growing divergence in Hungarys legal and institutional system from the norms of Western European type of market economy and in the way they are being run is leading to capital outflow, GKI said. The think tank said that the positive effects from the reduced general government debt and the termination of the excessive deficit procedure by the EU are offset by negative trends, including the insistence of the government to wrong economic policy and institutional changes that caused the adverse developments. Speaking about GDP forecast, GKI said that on the production side a moderate increase in projected only for the industry and information and communication sectors. By contrast, agriculture and construction will continue to contract. Financial services will decline as well, reflecting an over-taxation of the financial activities. Household consumption is projected to decline by 2.5% on the year due a similar decrease in real earnings. Investment activity is expected to contract by 4% y/y. Some growth can only be expected in exports helped by new automotive investments. The rate of unemployment will stagnate to about 11% in 2012, remaining almost unchanged in annual comparison. GKIs projection for the annual inflation was raised to 5.7% from 5.3%. In the long-term, Hungarys inflation will stay between 4% and 5%, permanently exceeding the corresponding figures of the CEE region.

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