Unemployment is likely to reach double-digit figures during the projection period. After slowing at the beginning of 2009, consumer price inflation is projected to rise during the year due to value-added tax and excise tax increases and the recent currency depreciation.
Implementing sustainable fiscal consolidation is the key for boosting investor confidence and providing room for monetary policy to ease. Given the projected severe recession, maintaining deficit objectives through further cuts would amplify the cycle. To foster credibility of fiscal consolidation policymakers should thus adhere to nominal expenditure targets, while strengthening the medium-term expenditure framework. This, together with the shift from direct to indirect taxation, should raise Hungary's growth potential.
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©OECD Observer No 274, July 2009