Hungary in economy mode

As a result of the global financial crisis, the abundance of liquidity ended last year for Hungary. According to GKI forecasts, we are expected to reach the bottom of recession around the end of 2009, but only slow and uncertain recovery is foreseen for 2010. While improvement is expected to continue in regard of the balance of payments, recession is deepening. This year’s GDP calculated at current prices is expected to be 2 percent less than in 2008. This will reduce profits and government revenues from profit tax substantially. The drop in consumption will also result in a drop of tax revenues which are expected to total HUF. 400-450 billion, compared to the estimate in the accepted budget. Indebtedness will increase in 2009, leading to the gross national debt possibly exceeding 80 percent. The performance of the economy will drop by 4-5 percent in 2009, with industrial production dropping by 10-15 percent. The volume of foreign trade is expected to drop by 9-10 percent. Investment will be down by 5 percent. EU funds available for development will total EUR 2.5 billion in 2009. The unemployment rate is expected to average 8.7 percent in 2009. Real income of the population will drop by 1.5-2 percent. Our accession to the ERM-2 system, a reduction of government expenditure and the beginning of structural reform can boost confidence in the HUF, which could translate into strengthening and stabilising it around the average exchange rate of 290 HUF to the EUR in 2009.