About-turn in Hungary’s economic policy, room for wrong-turn slight – analysts

London, June 24 (MTI) – Hungarian economic policy did an about-turn this year with the announcement of structural reforms, which have diminished market risks greatly, but implementation potholes still abound and room for wrong-turnings is narrow, financial analysts said in London on Friday.  

The end of 2010 and start of this year was the turning point as the Fidesz centre-right government came face to face with budgetary and growth problems after committing itself to EU public-finance goals before unveiling structural reforms in order to preserve longer term budgetary stability, Goldman Sachs analysts said.

 

Implementation risks continue in the current fiscal programme, namely official targets to cut the public deficit and expand growth and jobs appear too optimistic, the analysts said. At the same time major spending cuts are slowing down the economy, they added.

 

The risks will not appear this year or in the beginning of 2012 given the government’s large cash reserves, as well as the fact that the reforms are in their early stages. If they fail to produce the desired outcomes, then it will be hard for the government to meet its targets and keep investors on board without rethinking its reform plan and imposing additional spending cuts.

 

Goldman Sachs expects the budget to post a surplus of 2.5 percent of gross domestic product this year, though it sees major risks in meeting the 2012 target of below 3 percent of GDP. Growth is expected to reach 2.5 percent this year and 2.6 percent in 2012, it added. It expects interest rates to remain at 6.0 percent in the long term.

 

Its analysts said that Hungary cannot afford to lose investor confidence and the input of the market.

 

Similarly, Barclays Capital analysts said the government had done a “U-turn” in economic policymaking, creating confidence to the extent that Hungary is able to raise money entirely from the international bond market. Again, it said the main risk came in the form of implementation. Its analysts said that labour-market and pension reforms had already clashed while planned transformations of public transport and local government had had a rocky start.








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