Deteriorating prospects for Europe

According to a forecast by GKI Gazdaságkutató Zrt. with Erste Bank, growth will speed up in the second half of the year. Both internal and external balance is improving and the inflation rate is slowly falling. While GDP in the EU was down by 0.1 percent in the second quarter, compared to the first, it was up by 0.6 percent in Hungary. Growth in Hungary has been slightly faster than the EU average of 1.7 percent, but far slower than in neighbouring new members states. Industrial production was down in June, compared to 2007 and export showed stagnation following double digit expansion in the first third of the year. However, 5-6 average overall growth in production is expected in 2008. While unemployment has risen slightly, 3 percent GDP growth is expected. Prices were up by 0.1 percent in July, compared to June, and by 6.7 percent compared to July 2007. Inflation will be down to 5.5 percent by December. Real income was up by 0.5 percent in the first half, with a 1.5 percent increase in the competitive sector and a 1.5 percent drop in the government sector. The HUF had strengthened substantially in July and stayed strong in August. The HUF exchange rate is expected to drop in the second half. If the political situation remains stable, the prime lending rate is expected to be reduced gradually in the autumn.