Monday, December 12, 2011

Hungary economic growth outlook 2012

World Economic outlook - Hungary economic growth outlook 2012 : Hungary's government will cut its 2012 economic growth estimate to 0.5 percent or even lower and rework next year's budget with a significantly weaker exchange rate, Prime Minister Viktor Orban said on Sunday.

Orban's centre-right government moved to overhaul the budget as a team of International Monetary Fund and European Union delegates prepares for a Dec. 13-16 visit to Budapest to lay the ground for official talks on assistance due to start next month.

Hungary, saved from collapse with a 20 billion euro IMF/EU loan in 2008, turned to international lenders for renewed help after its forint currency hit a record low last month, rattled by market doubts about the government's unorthodox policies.

"We must cut the growth (assumption) from 1.5 percent to at least 0.5 percent, but that is the upper limit, maybe even lower and significantly increase the forint exchange rate (assumption)," Orban told public television m1 in an interview.

He said the main reasons for the revision were slower growth in Europe, as the continent grapples with the euro zone's debt crisis, and volatility in the euro's exchange rate, which could have a detrimental impact on Hungary's forint.

The draft 2012 budget, submitted to parliament late in September, was built on 1.5 percent economic growth and a forint exchange rate assumption of 268 versus the euro, both much more optimistic than current prospects.

Analysts expect 0.5 percent growth for Hungary next year , while the Organisation for Economic Co-operation and Development projects a slight recession in 2012.

After a one-off 2011 surplus, the 2012 budget targets a deficit of 2.5 percent of economic output with a combination of tax increases and spending reductions worth over 1 trillion forints and over 300 billion forints in budget reserves.


Orban did not specify what items the government would change in the budget, due for a final parliamentary vote just before Christmas, but said he would like to maintain the level of reserves to shield finances.

"I would like to keep the level of reserves as much as possible, therefore we will have to make changes (to the budget) in several areas," Orban said in an interview recorded on Saturday.

He expressed hope that the government will be able to avoid another budget adjustment mid-year and continue implementing its public sector reforms on the basis of the original schedule, but that required that euro zone leaders tackle their own crisis.

Orban said earlier his government planned to submit the relevant budgetary amendments to parliament as soon as Monday.

Moody's downgraded Hungary's credit rating to "junk" last month, citing high debt levels and weak growth prospects. Fitch and Standard & Poor's have said their assessment hinged on the outcome of Hungary's planned talks with international lenders.

Orban said his government would continue to work with banks on a solution to resolve the problem posed by a huge stock of foreign currency loans in Hungary, a key source of vulnerability and a drag on economic growth.

"Foreign currency loans are a bad product, they push hundreds of thousands of Hungarian families into debt slavery. This product cannot remain in the Hungarian economy, it must be removed," Orban said.

The government is in talks with banks and the central bank on a comprehensive package of solutions to tackle foreign currency lending.

Orban added parliament would begin discussion of Hungary's participation in a new EU accord on tighter fiscal union next week.

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