Economy 24 August 2011, 5:03pm

Hungary EcoMin ready for shocks, may make macro estimate revisions

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Hungary’s government does not expect the strengthening of the Swiss franc to dramatically reduce consumption, the National Economy Ministry told local newswire MTI. The ministry also said new macroeconomic estimates will be part of the 2012 budget bill and there may be some revisions made to the present forecasts.

The ministry underlined that by allowing foreign-currency borrowers to fix the exchange rate of their monthly instalments it has created a tool that will ensure that the discretionary income of the affected households will not decrease.

Therefore the cabinet does not expect the forint’s easing versus the CHF to have a dramatically negative impact on consumption.

While the ministry acknowledged that the international developments of the past few weeks and the latest Hungarian GDP data add to the downside risks to growth. It has confirmed, however, that the weaker-than-expected growth does not jeopardise the 2011 budget deficit target and that the government remains committed not only to achieving that goal and restoring budget balance but also to reducing state debt.

About the growth outlook on 2011 the ministry noted that the new macroeconomic estimates would constitute part of the 2012 budget bill and that “there may be changes in it compared to the current prognoses."

When it turned out Hungary’s economy grew by a mere 1.5% yr/yr in the second quarter (against the market’s call for a 2.3% growth) and that it was flat q/q, András Kármán, Secretary of State at the Economy Ministry, said there might be changes to the official estimates.Then Viktor Orbán said there will be no revision, as it will be the government that will “adjust itself to reality."Hungary drew up a conservative and a dynamic growth scenario in its Convergence Programme. Under the first GDP was to grow by 3.1% this year and 3.0% in 2012, while the more optimistic scenario forecasted a 3.2% output increase in 2011 and 3.6% in 2012. Based on the latest data, however, even the conservative path appears to be overly upbeat.

It was a favourable message for the markets when the government was willing to admit its growth plans may be exaggerated, despite the fact that next year’s budget and the ambitious fiscal adjustment goals are based on these goals.