Hungary's government raised its forecast for inflation and lowered its prediction for growth this year in the European Union's slowest-growing economy, citing a worsening outlook for exports, Bloomberg reported.

Consumer prices will probably rise 5.9 percent in 2008 after 8 percent last year, while gross domestic product will increase 2.4 percent after 1.3 percent in 2007, Finance Minister Janos Veres said in Budapest today. The previous prediction was for 4.8 percent inflation and 2.8 percent growth.

Economic growth in the fourth quarter was the lowest in more than 11 years after Prime Minister Ferenc Gyurcsany cut state jobs, raised taxes and slashed subsidies to bring down the EU's widest budget deficit. Slowing EU growth will impede recovery, Veres said today.

``The EU is counting on significantly slower growth because of slowing U.S. expansion and problems on the credit market,'' he said. ``These changes also have an adverse effect on Hungary's exports.''

The forint traded at 257.50 per euro at 1:16 p.m. in Budapest, from 256.99 late yesterday. The yield on the benchmark three-year bond fell to 8.96 percent from 9.07 percent.

Hungary yesterday reiterated that it expects the budget deficit to shrink to 4 percent of gross domestic product this year from an estimated 5.7 percent last year and a record 9.2 percent in 2006. The government is aiming to reduce the shortfall to 3.2 percent next year.

The government has cut budget reserves by 20 billion forint ($122 million) to reach its deficit target, Veres said today. A planned tax cut may be as much as 100 billion forint less than earlier expected as rising bond yields make it more expensive to finance the shortfall, he added.

Hungary earlier planned to reduce taxes by as much as 250 billion forint.