Economy in recession, Euro coming

According to a forecast made by GKI Gazdaságkutató Zrt. with Erste Bank, the Hungarian economy will be forced to change course as a result of radical changes in the world market. Financial balance is expected to improve even further, but this will be accompanied by stagnation and growing unemployment. The decisive factor in improving financial balance will be cutting the deficit of the budget to 2.5 percent of the GDP. Foreign and domestic demand is not expected to increase in the rest of the year and 2009. Financing will be more difficult to obtain and prospects for growth are bleak. Economic growth is expected to drop to 0.5 percent in 2009. Foreign trade will slow down drastically, but export will continue to expand at a faster rate than import. Investment will drop, as well as consumer income, leading to limited demand. High interest rates and growing uncertainty might encourage saving. Inflation is expected to drop rapidly in the next few months, averaging 6.2 percent in 2008 and 3.9 percent in 2009. The HUF is expected to strengthen, averaging 250 against the Euro in 2009. If the international financial markets are stabilised successfully, Hungary will be in a position to take a big step towards joining the Euro zone by joining the ERM-2 system.