Hungarian Inflation Forecast Faster, Growth Slower

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Hungarian Inflation Forecast Faster, Growth Slower

Hungarian inflation will pick up more than previously predicted, even as economic growth slows because of austerity measures, a survey of economists shows, Bloomberg reported.

This year's inflation rate will jump to 7.7 percent, compared with a 7.4 percent forecast three months ago, according to a Bloomberg survey of 16 economists. Growth will slow to 2 percent, down from the earlier 2.6 percent prediction, and the budget deficit will be 6.2 percent of gross domestic product, compared with the previous outlook for a gap of 6.4 percent of GDP.

Prime Minister Ferenc Gyurcsany's government has been fighting to trim the European Union's widest budget deficit after the EU threatened to cut off some aid. As a result, inflation accelerated because of higher taxes at the same time reductions in subsidies and state job cuts quelled growth, economists said.

Policy makers yesterday unexpectedly held the benchmark interest rate at the EU's highest because a food-price ``shock'' from a summer drought and record temperatures that ravaged crops threaten to push prices higher even after the inflation rate fell to the year's lowest in September.

Food prices rose 2.2 percent from August and were 9.8 percent higher than a year earlier. They account for 22.4 percent of the consumer price index. Grain producer prices in the first seven months were 38.6 percent higher than a year ago while fruit costs rose 21.3 percent.

The inflation rate is set to fall to 4.4 percent next year, rather than the previously forecast 3.6 percent, and will total 3.2 percent in 2009, according to the survey.

The central bank wants to lower the rate to less than 3 percent in 2009. The government, which wants to meet euro- adoption terms that year, will find it ``difficult'' to reach that target, according to Finance Minister Janos Veres.

The economy expanded 1.2 percent in the second quarter, the slowest pace in more than a decade, after the austerity measures sapped consumer spending and crimped investment.

The $123 billion economy's growth rate is the second-lowest in the 27-nation EU after Denmark, as other former communist eastern European nations enjoy robust growth.

The Polish economy grew 6.7 percent in the second quarter, Czech gross domestic product rose 6 percent and Slovak GDP advanced 9.4 percent.

Even as the Hungarian government expects growth to return to previous levels once the effects of the budget measures wear off, the damage may be bigger than previously thought, economists said.

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