Budapest  - Hungary's economy is set to shrink by 4 to 5 per cent this year, the head of economic think tank Kopint-Tarki said on Friday.

The economic research institute has issued increasingly grim forecasts over recent months as Hungary's economic gloom has deepened.

In December, the estimate was a contraction of 1.3 per cent, said Kopint-Tarki head Eva Palocz.

In order to meet its commitment to the European and the International Monetary Fund to rein in its budget deficit to within 3 per cent of gross domestic product (GDP), the state budget would have to be cut by a further 270 to 360 million dollars, Palocz noted.

This is in addition to recently announced spending cuts equivalent to 945 billion dollars.

The socialist government currently estimates that the economy will shrink by 3.5 per cent this year.

The government was on Friday reminded of the difficulty of implementing huge public spending cuts on Friday. Public sector unions threatened a mass demonstration in front of parliament on April 4 if their concerns over proposed tax and pension reforms are not addressed. (dpa)