Financial Crisis Will Make Everyone Live A Bit Less Well

The central bank has doubts about (the cabinet's) growth projection for 2009, Simor told InfoRádió, adding that in its November Inflation Report the NBH would have its previous 2.4% economic growth prognosis lowered for next year.

Simor said the government was right to draw up also a pessimistic scenario for next year's budget. He underlined that in the current environment where investors' risk radars are spinning on high alert, every debtor, including the Hungarian state should implement measures that reduce the sense of risk in investors.

“It's important (to have) a strict fiscal policy and to keep (Hungary) on the pre-set declining deficit path," Simor said. He expressed his hope that the public sector gap would shrink further and the government would assume a longer-term commitment with regard to the 2010 Budget, as well.

He stressed it would be crucial for the cabinet to agree on a system of rules so as to avoid the usual overspending as elections approach. “With consistency you can convince investors that the government is thinking not one but several years ahead," Simor added.

The impacts of the financial crisis are already tangible in Hungary

Due to the decelerating global business cycle, Hungary's export growth will shrink and the added value of net exports to economic growth will be smaller, therefore domestic employment, consumption and income levels are expected to turn out less favourable, Simor projected.

He said the impacts of the international financial crisis are already palpable in Hungary, as the external trade figures of the past one or two months already showed. One of the reasons for that is that Hungary's exports greatly hinge on Germany's economic growth and that country performed badly in the first half of the year.

Another implication of the crisis, besides a fall in export growth, may be stricter lending conditions, Simor said, adding that signs for that are already seen at corporate loans and that retail lending could also be “infected".

Investments are likely to slow down and the mortgage market and household consumption are likely to contract, as well, he added.

Simor believes that the tougher market environment will dampen growth and eventually “everyone will live a little less well". 

Source: Portfolio Online Financial Journal