Hungary’s recession deepened in the fourth quarter, boosting pressure on policy makers to continue cutting the European Union’s highest benchmark interest rate.
Gross domestic product shrank 2.7 percent from the same period a year ago, the steepest slump in three years, the statistics office in Budapest said today, confirming its preliminary estimate. The economy shrank 0.9 percent from the previous three months, a fourth consecutive quarterly decline.
Hungary’s second recession in four years and slowing inflation give the central bank room to keep cutting interest rates. The bank, which has reduced borrowing costs by 1.75 percentage points in the last seven months, lowered the two-week deposit rate by a quarter-point in February to a record-low 5.25 percent.
Prime Minister Viktor Orban, under pressure to generate growth before elections in 2014, selected former Economy Minister Gyorgy Matolcsy as the new central bank president. Matolcsy has vowed to work with the government to boost GDP.
The forint fell to as low as 300.13 per euro on March 6, a nine-month low. The currency traded at 298.77 per euro at 8:41 a.m. today, little changed from yesterday.
The central bank, in cooperation with the government, can expand sources of corporate lending, which is “key” to ending the recession, Matolcsy wrote in a column published in Heti Valasz yesterday, vowing a growth rebound this year. His unorthodox policies, including the highest bank tax in Europe, damaged lending and helped push the economy into a recession.
Agriculture production dropped 26.4 percent in the fourth quarter of 2012 from a year ago, while industrial production declined 3.8 percent, the statistics office said. Construction output fell 6.1 percent and household spending eased 1.4 percent.