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Hungary may seen higher-than-expected budget deficit this year, the Organisation for Economic Co-operation and Development said in a report on Thursday.
The deficit is likely to reach 4.1% of gross domestic product this year, higher than the government's target of 3.8%, the Paris-based OECD said in its Economic Survey of Hungary.
It said Hungary should continue fiscal consolidation, through structural reforms, while avoiding excessive pro-cyclicality if the economy deteriorates beyond anticipation.
As the economy recovers, the OECD said, Hungary's central bank should continue to carefully communicate to financial markets so as to avoid financial stability concerns in case of sudden changes in market confidence.
The group said Hungary's economy is likely contract 1% this year, before logging a growth of 3.1% in 2011.
A well-balanced policy mix is the key to maintaining a sustainable growth path in Hungary, the OECD said. "Fiscal consolidation is a pre-requisite since market confidence is needed to allow the central bank to base its policy stance solely on inflation targeting," it added.
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