Hungary: Control financial vulnerabilities
Against the background of global financial turbulence, economic activity is set to decline in 2009, before picking up with the recovery in world trade and with higher confidence following international financing support. Inflation should decelerate towards the 3% target as wage growth remains moderate. The current account deficit should narrow.
Controlling financial vulnerabilities is a key policy priority. The most urgent challenge is to move forward with announced measures to improve banks’ risk management (including stress testing), particularly regarding households’ large foreign currency exposure. Efforts to restore the sustainability of public finances should continue and past profligacy in election years avoided, so as to provide room for reducing tax and social security wedges when the financial crisis subsides.