EU Deficit Forecast Casts Doubt on Hungary Preocedure End

The European Union predicts Hungary will overshoot the bloc’s deficit limit next year, casting doubt on the country’s exit from its monitoring for budget offenders.

The shortfall will widen to 3 percent of gross domestic product this year and 3.3 percent in 2014 from 1.9 percent in 2012, breaching the 27-nation bloc’s limit of 3 percent, according to forecasts published today by the European Commission, the EU’s executive. The commission projected deficits of 3.4 percent for this year and next in February while the government targets a gap at 2.7 percent for both years.

Since coming to power in 2010, Prime Minister Viktor Orban sacrificed growth to keep the shortfall within EU limits and remove the threat of cuts in the bloc’s funding. Hungary may not be released from the so-called excessive-deficit procedure if the EU sees the country overshooting the limit this year or next, Peter Beno Banai, deputy state secretary at the Economy Ministry told the Budapest-based Magyar Nemzet newspaper today.

“The EU will presumably not propose lifting the procedure if we meet the criteria in 2013 but they calculate with a slightly higher number for 2014,” Banai said.

The forint gained 0.2 percent to 295.63 per euro by 10:38 a.m. in Budapest, its strongest since April 18. The currency has gained 2.3 percent this week, which puts it on course for its biggest weekly rally in almost 11 months and the best performance among 31 major currencies tracked by Bloomberg. It has weakened 1.5 percent this year.

GDP, Inflation

The economy will expand 0.2 percent this year and 1.4 percent in 2014 after contracting 1.7 percent in 2012, according to the commission. The government sees economic growth of 0.7 percent this year. Inflation will probably average 2.6 percent in 2013 and 3.1 percent in 2014 after 5.7 percent last year, the EU said. The central bank targets 3 percent annual price growth.

Hungary should be allowed to exit the deficit procedure, Orban said in an interview on public radio MR1-Kossuth today, adding that the EU is often “unjust” and uses “double- standards” by being flexible on budget rules for some countries.

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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