External factors set to boost Hungary GDP growth to 3%

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A favorable mix of external factors may see Hungaryʼs economy growing by around 3% this year, London-based emerging markets economists said. In a report highlighting key findings of a recent visit to Hungary, analysts at ICBC Standard Bank said the first signs of a European economic recovery are "very encouraging for Hungary". 

Boosted by the combination of low oil prices, the weak euro and cheap money fuelled by the ECBʼs quantitative easing cycle, "Germany and German exporters are on fire", helping to boost Hungarian industrial production and exports. Better than expected March manufacturing PMIs in Germany, France and Italy also confirm the positive momentum generated in the eurozone, and Hungaryʼs PMI came in at a very strong 55.6, boosted by export orders.

As a result, "it is looking all the more likely" that Hungaryʼs current account surplus will surge to possibly 5% of GDP in 2015, "a powerful mix" when combined with a potential GDP growth of 3% and inflation that is likely to move gradually higher to 1% by the end of the year, ICBC Standard Bankʼs analysts said.

However, inflation is not expected to rise to the target of 3% for a considerable time due to the unused capacity in the economy, and this, combined with the strengthening HUF and high real rates leaves plenty of room for the central bank for an additional 45bp of cuts to 1.5%, they added.

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