• On the following pages we present an updated outlook on the Hungarian economy taking into account the latest economic releases for September and October.
  • The Hungarian economy has experienced a significant drop in economic activity over the past couple of quarters. However, it looks as if the drop bottomed in Q2 09 and that a slow and gradual recovery started in Q3 09. Overall, we expect GDP to contract on average by 6.6% y/y in 2009 and by 1.7% y/y in 2010.
  • The large drop in private consumption played a considerable role in the downturn. However, in Q2 09, private consumption improved slightly and it should continue to improve slowly going forward. July’s hike in VAT will, however, slow the recovery of private consumption and consequently economic growth. The hike in VAT has pushed up inflation, which means that real wage growth has turned negative. This will have a negative impact on retail sales and thus private consumption well into 2010.
  • Although the hike in VAT pushed up inflation in July, inflation has eased gradually since as there is currently no inflationary pressure in the Hungarian economy. We expect Hungarian inflation to average 4.1% y/y for 2009 and 3.9% y/y for 2010.