Hungary sees no risk of overheating, says report

History

Hungaryʼs policymakers "feel pleased" with how their policies have worked out, and reject any notion that the economy is overheating, London-based emerging markets economists at investment bank Morgan Stanley said on Monday, in a report highlighting the key findings of a recent trip to Hungary.

In the report, Morgan Stanley said that as growth was 4% in 2017, the budget deficit likely ended the year around 2% of GDP and inflation remains contained, the authorities are looking at this as an implicit vindication of their policies, and "essentially plan to do more of the same."

Wage increases are seen as essential to keep Hungarians from going abroad, and to encourage more to join the labor market, the report observes. Given the low wage share and the large gap with the EU, wage hikes are not seen as detrimental to Hungaryʼs competitiveness in the eyes of the authorities; on the contrary,  the report adds, they are an important part of Hungaryʼs economic success.

While Morgan Stanley says that "it is perhaps not surprising" to see the government endorsing a policy of rising incomes in the run-up to an election, it notes that it is less common to see a central bank "embracing the notion of above-potential growth so wholeheartedly."

The National Bank of Hungary (MNB) not only believes that the economy is not overheating, but it also thinks that "running the economy hot" is itself conducive for lifting potential growth by boosting consumer confidence, observes the report.

Within this framework, and against the backdrop of a strong external surplus that gives the forint a natural tendency to appreciate, the central bank has every incentive to keep policy rates - effectively BUBOR, near zero - on hold for as long as possible, observes Morgan Stanley. Moreover, the bankʼs policy "seems to us to be designed to lag its peers (the ECB and other CEE central banks), thereby making the Hungarian policy stance looser in relative terms."

ADVERTISEMENT

17% of homeowners plan renovations this year Analysis

17% of homeowners plan renovations this year

Meeting called to address Pegasus spyware lacks quorum  Parliament

Meeting called to address Pegasus spyware lacks quorum 

Skanska commercial dev unit names new EVP of operations Hung... Appointments

Skanska commercial dev unit names new EVP of operations Hung...

Zsa Zsa Gabor's ashes buried in Budapest City

Zsa Zsa Gabor's ashes buried in Budapest

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.