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Monday, November 13, 2006

Ecostat Forecast

Ecostat see the Hungarian economy growing by 2.8% in 2007. This seems way on the high side for me. The key issue looks set to be the monetary tightening needed to contain inflation pass through and the cuts in consumption (both public and private) that are a by-product of the correction programme. I won't offer an estimate of my own yet, we need to see some real GDP data, and I need to get a better feel of things, but I think it is so, so important in economics to remember that there are time lags. So monetary policy put into practice today will only really take effect out in March or April, etc etc.

Hungary's economy will growth by 3.9% in 2006, more moderately than in 2005 (4.1%), local think tank Ecostat has said on Monday in its latest economic forecast. Nevertheless, growth will drop sharply to 2.5-2.8% in 2007, the researcher added.

Both export and import growth will be larger this year than in 2005, but decline again next year, Ecostat noted.

The researcher sees this year's public sector deficit reaching 10.2% of gross domestic product, but noted the austerity measures could push down the gap to 6.2%-6.8% of GDP in 2007. The government's target is 6.8% for next year and 3.2% for 2009.

The Ecostat noted that details of the government's reform measures would be known in detail only next year and the planned steps would first start to bear fruit in the second half of 2007 or early 2008.

This is one of the key points:

The think tank puts this year's household consumption growth to 2.1% yr/yr (vs. 1.4% in 2005) and expects it to decline to virtually zero (0.0-0.4%) in 2007.

The thing is it isn't at all impossible for household consumption growth to drop into negative territory next year.

Also worthy of note is that they are only expecting a small drop in the level of the trade deficit. In this case the numbers simply don't add up, and they should know that:

The Ecostat expects the current account deficit to drop to 6.6% of GDP this year from 7.0% in 2005 and drop to 6.0% next year.

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