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GDP Growth: Erase and Revise Upward

Reacting to the good start to the year, analysts and economists have raised their growth projections for 2018, with some now even saying that the Hungarian economy will expand way above 4% this year. If a 4.5% growth rate projected by a couple of analysts becomes a reality, Hungary might top the growth list in the region for the very first time.

Economic research company Századvég has raised its GDP forecast to 4.1% based on better-than-expected industrial output and retail sales data released at the beginning of the year. The revised forecast, however, is still under the government’s official projection of 4.3% GDP growth in 2018.

Századvég now projects a 7.2% investment growth for the full year, factoring in EU-funded capital expenditure and new home construction. The research organization expects exports to climb to 5.7% and imports to rise by 6% this year. As for average annual inflation, Századvég forecasts 2.6%.

Another research institute, Pénzügykutató, has also revised its forecast upwards, although it remains below 4%. Researcher Éva Várhegyi said that the projected 3.9% growth for 2018 is supported by a favorable external environment, accelerated absorption of EU development funding, and also by the performance of the agricultural sector, loose budgetary and income policy, and monetary policy stimulating the economy.

Pénzügykutató sees that inflation could be around 2.3% this year, with unemployment possibly falling as low as 3.5%, while investments could grow by 9%. 

Least Optimistic

Usually the least optimistic, GKI research institute once again projected the lowest growth rate for 2018. Even so, it now predicts a 3.8% expansion. Although Hungary’s GDP expanded last year by 4%, faster than expected and considerably faster than the EU average, its growth rate remained comparatively moderate in the CEE region, GKI noted. The institute therefore is not changing its GDP growth forecast of 3.8% and investment growth forecast of 9% for 2018.

Like last year, it predicts industry will expand by 5% in 2018. Compared to its previous projections, GKI has cut its inflation forecast from 3% to 2.7%, and its unemployment forecast from 4% to 3.7%. GKI also mentioned that the three main problems of Hungarian economic policy are the elimination of competition, the erosion of human capital, and international isolation. In its note, it says that after the elections on April 8, it will be necessary to reconsider Hungary’s European policy, including the introduction of the euro, which will inevitably affect the Hungarian model as well, GKI notes, adding that its forecast does not deal with the outcome of the elections.

Raiffeisen Bank is being more optimistic when it comes to the Hungarian economy. At a recent press event, the bank noted that it expected the favorable economic conditions to remain for 2018, which will result, according to the bank’s estimate, in 4% GDP growth on a year-on-year basis. The bank’s analysts still forecast a below-the-target inflation rate and stable forint exchange rate for the year. 

The National Bank of Hungary (MNB) has also raised its growth projections. In its latest Inflation Report, the central bank is predicting 4.2% GDP growth this year, up by 0.3 of a percentage point compared to its earlier forecast. The 3.3% growth expected for 2019 is also 0.1 of a percentage point higher than the December projection. For 2020, the MNB is expecting GDP growth to slow to 2.7%, in line with its earlier prediction. 

The Ministry for National Economy is a bit more optimistic than the central bank, putting GDP growth at 4.3% this year, 3.8% next year, and 3.7% in 2020. 

Most Optimistic

The most optimistic revision among domestic economists, however, comes from Takarékbank. According to its analyst Gergely Suppan, the growth rate of the Hungarian economy may continue to accelerate this year, and he is now expecting a 4.5% growth in GDP in 2018, up from the 4.2% predicted three months ago. Suppan says that with domestic wages rising significantly, he expects that household consumption will expand by 5% this year.

Also way above the market consensus, UniCredit Bank has released an upbeat prognosis for the Hungarian economy. Analysts at the bank now say that the Hungarian economy could grow by 4.5% this year. In its regional review, it expects a 4% plus growth for Bulgaria, Poland, Romania and Turkey as well, so it expects the CEE region to perform really well in 2018. 

However, the prognosis for the Hungarian economy is outstanding in the region, and if the bank is right, Hungary could produce, for the very first time, the fastest growth rate in the CEE region. Online financial journal Portfolio noted that Hungary’s GDP growth was the second highest in this region in 1998 and 2014, but it has never been the highest. Quite the contrary, Hungary came last in the growth ranking in 2016, an unwanted position it also picked up in 2006 and 2007.

But while UniCredit expects a high growth rate for 2018, it also notes that the growth rate could fall sharply to 3.4% in 2019.

Base Rate Kept on Hold

The MNB’s Monetary Council decided to keep the central bank’s key rate on hold at 0.9% at its rate-setting meeting at the end of March. The council has left the base rate on hold at the record low since signaling an end to an easing cycle at a policy meeting in the spring of 2016. In a statement released after the meeting, the council said that “maintaining the base rate and the loose monetary conditions at both the short and long ends for an extended period is necessary to achieve the inflation target in a sustainable manner,” which is basically the same message it has been relaying for a number of months. “The council will closely monitor developments in monetary conditions and will ensure the persistence of loose monetary conditions over a prolonged period by using the extended set of monetary policy instruments,” the statement added.

Numbers to Watch in the Coming Weeks

The Central Statistics Office (KSH) will publish how consumer prices changed in March on April 10, followed by the second estimate of industrial output on April 12. The KSH will report on construction sector data and earnings on April 13 and 20, respectively.