Hungarian central bank has no room to loosen policy - ICEG EC

A likely pick-up in domestic demand and the faltering external business cycle will determine the fate of the Hungarian economy in the remaining of the year, the ICEG European Centre said in its latest forecast on Tuesday, projecting only a small upturn, a 2.1% GDP growth for this year and 3.2% for 2009.

International environment - no crisis in sight

In view of the first quarter's relatively more favourable growth figures it seems less likely that the world economy will suffer a major blow therefore the Hungarian economy, which is sensitive to fluctuations in external demand, will probably not face any serious shocks, the ICEG said. The rate of the oil price increase will probably retreat by the end of the year and the first signs of a moderation in this respect are already palpable at other commodities. The ICEG stressed, however, that external inflation risks remain very real and these weigh on developed economies to an ever greater extent.

Growth: crawling ahead

While Hungary's agriculture has seemingly found its footing, this will not be enough to "save" GDP. The ICEG estimates this year's growth at 2.1% and - seeing a pick-up in domestic demand - it projects that GDP growth will reach 3.2% in 2009, following last year's staggeringly low increase of 1.3% and 1.7% in Q1 2008.

This can bring about a minor improvement in the rate of employment and real wage growth in the private sector is likely to be smaller in 2008 (1.5-2.0%) than last year, the ICEG added. It noted that 13th month wages will cause some disturbance in the public sector, but it is already evident that real wages will growth there only next year.