Inevitably fast improvement of internal and external balance

The deficit of the general government in 2008 is expected to be around 3.3% of GDP, which is still high, but taking into account the balance of the pension funds – which is permitted by the EU – the deficit is below 3%, i.e. fulfills the Maastricht criter

 The forecast prepared by GKI Economic
Research Co. in co-operation with Erste Bank shows that in the
radically changed global economic environment the Hungarian economy
must take a completely new path as well. The recession is
unavoidable, while its duration is uncertain. At the same time the
internal and external balance of the economy is improving fast by
necessity.

Hungary fulfills the act on the 2009
budget, the deficit could easily be below 3%, even without the
pension fund correction, which is very important for the introduction
of the euro and the restoration of the confidence of the
international financial community. The excessive deficit procedure
against Hungary will be lifted in the spring of 2009.
The output
of the economy is expected to fall in 2009 by 1-1.5%, because the
external demand barely grows and the internal demand shrinks. The EU
transfers can only slow down the decrease of the investment demand
and the proliferation of the liquidity problems.

Next year
gross earnings will increase by approximately 2-3% in the national
economy and virtually stagnate in the budgetary sector. Inflation
will slow down considerably; nevertheless, real earnings will
decrease by approximately 1.5% (but only minimally in the competitive
sector). Employment will shrink palpably compared with the situation
in autumn 2008. The propensity to save of the households will
strengthened. This will be the result partly of difficult access to
and high cost of credit, partly of high yield on deposits and other
financial instruments. The share of own contribution demanded from
the borrowers is growing and its accumulation is time-consuming.

Inflation will slow down fast at the end of 2008 and beginning of
2009 – because of the high basis and the fall of global energy and
agricultural prices. In 2008 the average annual price increase will
be 6.2% (at the end of the year around 4.5%); in 2009 the average
price increase is expected at 3.5% (at the end of the year around
3.2%). In the uncertain global financial environment the exchange
rate of the forint will be volatile, but with a tendency of
strengthening. The fact that the cut in the central bank base rate at
the end of November was followed by strengthening of the forint,
shows that in the coming months there may be a series of smaller or
larger rate cuts. At the same time if Hungary enters the ERM-2 system
and declares the planned date of the introduction of the euro (2012
or 2013), this would strengthen the confidence in the Hungarian
economy and the forint. The result would be faster rate cuts and
stronger forint.