1. GKI Zrt., www.gki.hu Political and Economic Challenges and Responses October 2009. Dr. András Vértes Chairman GKI Economic Research Co.

2. GKI Zrt., www.gki.hu

3. Growth in selected countries and regions, 2000-2010 (preceding year = 100) Source: Eurostat, GKI GKI Zrt., www.gki.hu

5. Political survive the crisis keeping under controll social tensions continuing integration of Hungary to the EU Economic maintaining financial stability starting a decreasing path of state debt ratio improving comptetitiveness with further reforms Main challenges GKI Zrt., www.gki.hu

6. 2 elections ahead: general April 2010 local Autumn 2010 Probably the Bajnai-gov. will keep the situation under controll, the 2010 budget will be adopted. Hungarian Political Roadmap GKI Zrt., www.gki.hu

7. Good Chance for FIDESZ GKI Zrt., www.gki.hu Likely the FIDESZ will win next elections. Unclear economic policy and populistic criticism. Unclear economic policy and populistic criticism. Double speech bought voters. Double speech bought voters. Some confrontative and EU-sceptic elements in the Some confrontative and EU-sceptic elements in the policy. policy. But at the end they probably will maintain the economic equilibrium.

8. General government deficit and public debt in the G-20 group, 2000-2014 (as a percentage of GDP) Source: IMF GKI Zrt., www.gki.hu

9. General government deficit in selected EU countries, 2008-2010 (in per cent of GDP) Source: European Commission (April, 2009), GKI GKI Zrt., www.gki.hu

10. Public debt of selected EU countries, 2008-2010 (per cent of GDP) GKI Zrt., www.gki.hu Source: European Commission (April, 2009), GKI

11. Hungarian Economy – On Different Path Terrible overspending was in 2000-2006 6-9% to GDP But radical improvement in equilibrium in 2007-2008 deficit: 4,9 and 3,4% of GDP IMF-EU loan helped a lot From worst in the past Hungary will be the best in the region and one of the best in EU in 2009-2010. deficit target: 3,5-4% to GDP (EU and IMF approved) EU average ~ 6-7% GKI Zrt., www.gki.hu

12. Speeding up Structural Changes Expenditure and revenue part as well Pension system 13 th month, indexation, early retirement, handicaps now 11% of GDP will keep below 10% from now till 2060!! Welfare children and family allowance, housing subsidies Economic subsidies gas, heating, railway, local authorities All budget cuts (compered with the accepted budget) are 2009: 1,4% of GDP 2010: 3% of GDP GKI Zrt., www.gki.hu

13. Revenue in Recession 2009 2010 GDP–6,5% stagnation Weak export and domestic markets, shrinkening borrowing possibilities. No room for fiscal alcoholism!! Stimulous elements: 3-4% of GDP in 2010, peanuts in 2009 tax restructuring in 2009 (VAT, excise versus income tax) definite income tax cuts in 2010 tax wedge from recent 54% down to 45% (Czech level) speeding up EU-financed investments (3 bn euro) targeted preferences to maintain workforce on the labour market GKI Zrt., www.gki.hu

14. Share of qualified assets in banks, 2006-2009 Source: Hungarian Financial Supervisory Authority GKI Zrt., www.gki.hu

15. Real Economy Drops everywhere: exports -15%, imports -18%, improving ToT, substantial trade surplus (4 bn euro) industry -16%, mainly in manufacturing building industry -5% retail trade -7% increasing number of insolvencies and bankruptcies real wages -4%, raising saving ratio private consumption -7% investments -5% inflation 4,4%, year end close to 6% unemployment 10% GKI Zrt., www.gki.hu

16. The exchange rate of Central Europiean currencies against the euro, 2008-2009 (31 December 2007 = 100) Source: IMF GKI Zrt., www.gki.hu

17. Growth and Euro on the horizon Stagnation in 2010, 3-4% growth after Euro in 2013-2014, ERM2 entry in 2010 100% fulfillment of Maastricht Criteria (deficit, debt ratio, inflation, long term interest rate) with some flexibility in practical (non-treaty) elements GKI Zrt., www.gki.hu

18. Thank you for you attention

19. GKI Zrt., www.gki.hu

21. IMF-EU package Helped in increasing foreign reserves, refinancing foreign debt, keeping up to the surface t-bond market. But no need further! GKI Zrt., www.gki.hu

22. GDP growth of selected EU countries, 2008-2010 Source: European Commission, IMF, GKI GKI Zrt., www.gki.hu

23. General government deficit and external financing requirement in per cent of GDP, 2000-2010 Source:CSO, National Bank of Hungary, GKI GKI Zrt., www.gki.hu

24. GDP growth of Central European EU member countries, 2000-2010 (1999 = 100) Source: Eurostat, GKI GKI Zrt., www.gki.hu

25. Reference rates, 2006-2009 Source: National Bank of Hungary GKI Zrt., www.gki.hu

26. General government balance in per cent of the GDP, 2006-2010 Source: Ministry of Finance, GKI GKI Zrt., www.gki.hu