Economic Growth And Inflation Slow

Markets closely watched the inflation data for clues on whether the Hungarian central bank will raise its base rate from 7.5 percent when policymakers meet on Feb. 25. The outcome was was down from 7.4 percent in December, and was roughly in line with analysts' forecasts of 7.0 percent in a Reuters poll .

The rate of increase in core consumer prices picked up to 5.2 percent year-on-year from 4.8 percent in December.
The extent of Hungary's slowdown in 2007, which was caused by tax and price increases, was shown by full year economic growth of 1.3 percent. This was a third of the 3.9 percent growth achieved in 2006, although the country has also been hit hard by a drought which hurt agriculture.

"Agriculture performed much worse than we had expected. Just as in the third quarter, it was agriculture and construction which pulled down growth," said KSH statistician Csak Ligeti.

Neighbouring Slovakia grew at 14.1 percent in the fourth quarter and 10.3 percent in the year, showing just how far Hungary is falling behind its peers.

Concerns about stubborn inflation and the vulnerability of the forint to global shifts in risk appetite have caused some investment banks to price out rate cuts this year and instead call for rate rises of up to 100 basis points.
The poor economic growth figures might give rate setters pause for thought, some analysts said, although the arguments of hawks could be bolstered by the prospect of more price increases to come.

"The January data do not yet contain the impact of the electricity and gas price hikes. This will appear in the February numbers," said KSH statistician Borbala Minary.

"This (CPI) figure is neutral, but the GDP figure was a disaster ... You can imagine that some Monetary Council members will think that a rate hike would only worsen low (economic) growth," said Zoltan Torok at Raiffeisen in Budapest."

Source: HVG