The European Commission (EC) raised its projection for Hungaryʼs GDP growth this year from 3.4% to 3.7% in a quarterly forecast released on Tuesday. The EC also raised the forecast for next yearʼs growth from 2.6% to 2.8%, state news agency MTI reported.
Hungaryʼs updated Convergence Program puts growth in both years at 4.0%, MTI noted.
The EC acknowledges Hungaryʼs economy grew at a pace of 4.9% in 2018, driven by construction investment, but says the expansion is "nearing its limits."
"Growth is set to lose momentum as capacity constraints limit the further expansion of domestic demand, while external demand remains subdued," the EC says.
The forecast projects private consumption growth will slow from 5.4% in 2018, to 4.9% in 2019, and 3.8% in 2020.
The EC notes that low unemployment and continued minimum wage rises are projected to keep wage increases above productivity growth. It adds that households are expected to spend an increasing share of their income on housing due to rising home prices and expanded government support targeting first-time home buyers.
The EC projects investment growth will decelerate from 16.5% in 2018, to 10.4% in 2019, and just 2.4% in 2020.
The forecast augurs "subdued" exports with slow growth in key export markets, while "buoyant" domestic demand is expected to keep import growth high, leading to current account deficits in 2019 and 2020.
The EC says risks to the forecast are balanced, with external risks on the downside and domestic risks on the upside as the tight labor market could sustain even higher wage and consumption growth.
Consumer price inflation is set to rise to 3.2% in both 2019 and 2020, driven up by rapid growth of unit labor costs and consumption, adds the forecast.
The EC sees the general government deficit narrowing to 1.8% of GDP in 2019, and 1.6% in 2020, but stresses that a more rapid growth of public investment and a potentially higher take-up of government measures that aim to boost the birth rate pose risks.