Bloomberg News

Hungary 2012 Budget ’Can Handle’ Lower Growth, Matolcsy Says

September 30, 2011

(Updates with Matolcsy comment from first paragraph.)

Sept. 30 (Bloomberg) -- Hungary’s economy won’t slide into recession next year and the 2012 budget “can handle” a lower growth rate than the current projection, Economy Minister Gyorgy Matolcsy said.

“The budget is built on 1.5 percent growth, but it can handle less,” Matolcsy said at a press conference in Budapest today. “We do not expect a recession.”

Hungary is raising taxes and cutting spending to trim the 2012 budget deficit to 2.5 percent of gross domestic product as the economy slows. The Cabinet of Prime Minister Viktor Orban slashed its growth forecast for next year in two steps to 1.5 percent from an initial projection of 3 percent.

The central bank expects the economy to expand 1 percent next year, though a recent government plan allowing the early repayment of foreign-currency mortgages at below-market rates may “significantly” change the economic outlook, Governor Andras Simor said yesterday.

Hungary is raising the value-added tax rate to a European Union high of 27 percent, increasing excise taxes on a number of products, introducing a new levy in the insurance sector and raising health-care contributions as a slowing economy cuts budget revenues.

The finalized budget draft, submitted to Parliament today, is calculated based on an average forint exchange rate of 268 per euro, Matolcsy said, adding that it contains alternative scenarios based on rates of 280 and 300.

Next year’s budget features a fiscal improvement of 1 trillion forint ($4.6 billion), Matolcsy said. Expenditures will fall by 303 billion forint, revenue will increase by 450 billion and the state still has 250 billion forint in stability reserves set aside this year, he said.

The government expects the primary budget, which excludes interest payment on state debt, to book a surplus of 1.1 percent of GDP, Matolcsy said.

--Editors: James M. Gomez, Andrew Langley

To contact the reporters on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net; Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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