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Thursday, January 17, 2008

Hungary Fiscal Deficit 2008

Hungary's Finance Ministry announced today that he expects the public sector deficit to reach HUF 27.5 billion in January and total HUF 1,111.2 billion in 2008, which would correspond to 4.0% of gross domestic product. State secretary István Várfalvi told a press conference this morning that the ministry expects a budget gap of HUF 581.5 billion or 2.1% of GDP for the first quarter. Hungary posted a surplus of HUF 48 bn in December 2007 (see this post here, which in addition to details contains some argumentation), against the ministry's forecast for a HUF 14 bn deficit. The annual cash-flow deficit (excluding local governments) amounted last year to HUF 1,291.4 bn or 5% of GDP, in line with the preliminary figure announced on 8 January, the ministry confirmed.

The original target was for a gap of HUF 1,668 bn, so the actual figure was HUF 377 bn lower than planned and down by HUF 750 bn from the gap registered in 2006. According to Finance Ministry estimates, GDP growth was 1.5-1.7% last year, while the country's external financing requirement dropped to 4.5% of GDP, ministry official Katalin Haraszti said. The government's forecast in the last update of its Convergence Programme, which was sent to Brussels on 1 December, was for a GDP growth of 1.7% and external financing requirement of 4.1% of GDP.

Basically, if external events do not intervene, we would have to expect pretty low growth this year due to the ongoing and systematic squeeze on government spending, plus the contraint on monetary easing which the central bank is under, which in part is driven by a need to contain inflation, but also now increasingly will e driven by a need to protect the Forint given the high level of swiss franc denominated external debt.

But when we consider that government spending can be down, domestic demand can be down, construction can be steady to down and exporst can come under very heavy pressure from the external slowdown, it is hard to see where Hungary is going to get GDP growth from this year. There seem to be no counter-cyclical measures available here at all.

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