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Brighter Prospects for Both Global and Local Economy

The outlook for both the global and the Hungarian economy look good this year, with projections for the latter having been revised upwards again.

 The International Monetary Fund recently released its latest economic forecast, stating that the activity of the global economy will continue to firm up in 2018. 

As for 2017, the institution put global output at an estimated 3.7%, which is 0.1 percentage point faster than projected in the fall and 0.5 percentage point higher than in 2016. The pickup in growth has been broad based, with notable upside surprises in Europe and Asia, the IMF notes. 

Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 of a percentage point to 3.9%. The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes, the IMF says.

However, the study notes that over the medium-term, a potential buildup of vulnerabilities if financial conditions remain easy, the possible adoption of inward-looking policies, and noneconomic factors all pose notable downside risks.

Stronger Than Expected

In emerging and developing Europe, where growth in 2017 is now estimated to have exceeded 5%, activity in 2018 and 2019 is projected to remain stronger than previously anticipated, lifted by a higher growth forecast for Poland and especially Turkey, the IMF forecast says. Although it does not mention Hungary specifically, outlooks have been revised and both the Hungarian government and most analysts now project GDP growth for 2018 of above 4%. 

As for last year, both the Ministry for National Economy and the National Bank of Hungary (MNB) expect GDP growth of around 4% in 2017, according to statements made recently by representatives of the two institutions. Speaking at an economic forum hosted in Vienna by the Euromoney financial magazine, Ágnes Hornung, minister of state for financial affairs at the economy ministry, said that GDP growth in 2017 may have reached 4.1%, which is likely to accelerate to 4.3% this year.

According to a forecast by the ministry, the state deficit is expected to be 2% of GDP, compared to the government forecast previously set at 2.4%. The lower deficit forecast is due to the six-year salary agreement signed between employers and employees, which has resulted in higher tax revenues.

The central bank also estimates greater GDP growth for 2017, putting it at around 4%. It says that the volume of investments was likely to have increased by more than 20% for 2017. According to the MNB, a high rate of investments is also expected for this year, while exports and household consumption are seen as fueling GDP growth. Inflation will stay at around 2% in the foreseeable future.

For the past year, consumer prices were up an annual 2.4% in 2017, the latest data released by the Central Statistical Office (KSH) reveals. Food prices rose by 3.5% and the price of tobacco and spirits jumped by 6.8% last year. Clothing prices were up 0.5%, but consumer durable prices were 0.4% lower. 

Detailed Data

The detailed KSH data also shows that household energy prices increased by 1.6% during the course of 2017, the price of goods in the category that includes vehicle fuel edged up 0.8%, with vehicle fuel prices up 0.5%. Service prices were up 1.1%. In the last month of the year, inflation was 2.1%, slowing from 2.5% in November. Inflation adjusted for a basket of goods and services used by pensioners was 2.3% both in December and in the full year 2017. The MNB noted that volatile items, such as food and energy, and demand-sensitive products made a similar contribution to price rises in December. 

ING Bank analyst Péter Virovácz told state news agency MTI that while inflationary pressure could grow, he expected inflation to remain below the central bank’s 3% target in 2018. He forecast an inflation rate of 2.7% for 2018. Dávid Németh of K&H Bank said inflation could slow down in the first quarter of the year, due to certain tax changes - such as the lowering of the VAT rate on fish and on internet services - but inflation may accelerate again after the second quarter, approaching 3% by the end of December. He projected inflation averaging 2.5% in 2018. Gergely Suppadn of Takarékbank put this year’s average inflation at 2.7%.

The Hungarian economy is still in good shape, Equilor said in a recent press release. The increasing domestic demand, the investment boom generated by EU funds and the record high consumer confidence index all signal further growth, Equilor analysts noted.

However, Equilor puts this year’s and next year’s growth a little lower than the government, at 3.5% and 3.3%, respectively. At the same time, it adds that these figures can be modified upwards depending on several internal and external factors during the year. It emphasizes that long-term outlook for the Hungarian economy greatly depends on the conditions of the European Union budget period starting in 2021. In the shorter-term, however, Equilor does not expect that the fiscal conditions will significantly ease this year in Hungary, despite the fact that 2018 is an election year.