GKI: Stop-go policies

GKI Economic Research Co. forecasts that a recession can be expected in Hungary in 2012, a decline of about 1.5 per cent just like in the first quarter of the year. Though exports will increase in the second half of the year due to automotive investments, domestic demand is not expected to improve. The around 1.5 per cent annual deterioration of the terms of trade is also reducing the income that can be distributed domestically. Starting the negotiations with the IMF and the EU has strengthened the Hungarian forint and reduced the risk premium. However, this may prove to be temporary since in the politics and economic policy of the government no turn has been visible yet that would be necessary for the conclusion of an agreement with the IMF and for the improvement of investor confidence in the economy. Government decisions announced in July loosening this year’s and next year’s budget may pose a threat even to next year’s termination of the excessive deficit procedure against Hungary.