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EBRD - Hungary has fallen behind

Recession will be in Hungary and Slovenia this year according to forecast of the European Bank for Reconstruction and Development (EBRD). 1.5% economic downturn with respect to Hungary set in new projections of EBRD due to uncertainty in timing with EU / IMF program.

24 January 2012

EBRD - Hungary has fallen behindThe eurozone debt crisis has already begun to have an impact on Central and Eastern European transition region, and recovery period will significanlty slow down in group of countries this year - shown in the overall forecast by the European Bank for Reconstruction and Development, which says Hungary and Slovenia of EU Member States will spend this whole year in recession.

In the latest projection of the financial institution - established in 1991 to finance Central and Eastern Europe and the former Soviet region's economic transformation - the avarage economic growth rate of 29 countries supported by the bank is set at 3.1% for 2012 after avarage 4.8% GDP growth estimated by the EBRD last year. Even this significant slowdown forecast is based on the assumption that the euro area sovereign debt crisis wil not worsen this year on the merits.

The EBRD's 30-page analysis points out that last year's third quarter - in the first time since 2009 - the transition region as a whole has suffered from a net capital outflow, and "seems" that the Western European banks have already been steadily dimantiling their interest in this region since last autumn. Especially Central European, Baltic and South-East European economies are concerned as it means that the region permeation of eurozone crisis through banks' interest could have been started as early as 2011 Fall - stressed in the analysis of the EBRD in London on Tuesday. This high risk had already been called by other financial institution in the City, London.

The EBRD predicts 0.5% decrease in GDP of eurozone this year and predicts that "turmoil in the euro area" is infiltrated into a group of transition countriies through commercial market and banking channels. The London financial institution says , the Central European and Baltic group including Hungary will have only 1.4% economic growth this year in contrast to the previous projection of 1.7% predicted last October.

Regarding Hungary, however, the London bank has changed forecast much steeper from 0.5% of growth by 2.0 percentage points to 1.5% recession in 2012.

EBRD also predicts - within this narrow region - recession in Slovenia this year : the Slovenian economy's growth previously forecast at 0.5% but droped down by 1.6 percentage points to 1.1% downturn in 2012. The analysis chapter concerning Hungary, the new EBRD projection of 1.5% economic downturn are explaiend by "the uncertainties in timing and nature with EU / IMF negotiations". Central Bank actions aim to defensive purposes for HUF but further central bank rate hikes will have "depression" effects on the Hungarian economic growth.

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