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EC raises Hungary 2018 GDP growth forecast to 4%

The European Commission (EC) raised its projection for Hungaryʼs GDP growth this year to 4% in a fresh forecast on Wednesday, up from a projection of 3.7% released in February, state news agency MTI reported. The EC publishes such forecasts three times a year.

The EC put 2019 GDP growth at 3.2%, also up by 0.1 of a percentage point from its previous forecast. The official Hungarian government forecasts for GDP growth are 4.3% for 2018 and 3.8% for 2019.

The EC said short-term business indicators and surveys point to sustained growth momentum in early 2018. GDP growth is expected to remain close to 4% this year, it said, but is forecast to slow down in 2019 as the level of investment reaches a plateau and the tailwinds supporting consumption moderate.

Corporate investment is forecast to grow vigorously, supported by high capacity utilization, FDI inflows, and rising absorption of EU funds, said the EC. The investment-to-GDP ratio may rise to 25% by 2019, it added.

Household income and consumption growth are likely to remain strong in 2018, but are expected to slow down in 2019 as the impact of past administrative wage increases fades. Private consumption could rise by 4.9% in 2018 and 3.3% in 2019. At the same time, capacity constraints in the construction sector may limit the further expansion of residential investment, the report observed.  

Export growth is expected to remain stable; however, imports will continue to outpace exports due to the rapid growth of investment and consumption of durables. The trade balance and the current account surplus are expected to narrow, although the rising absorption of EU funds will keep net lending stable, the EC said.

The unemployment rate is projected by the EC to decrease to 3.7% in 2018, and to 3.6% next year.

The EC is forecasting 2.3% inflation this year, down from its 2.8% forecast in February. Inflation in 2019 could be 3%, slightly up from its previous estimate. 

The general government deficit is set to rise to 2.4% of GDP this year as an effect of further tax cuts, a reduction in employersʼ social contributions and the phase-out of temporary receipts from land sales and an extra item in corporate tax payments, said the report, adding that the deficit could be down to 2.1% of GDP next year. 

The public debt-to-GDP ratio was 73.6% in 2017. The reduction of debt is expected to slow in 2018, with the debt ratio decreasing only slightly to 73.3%, the EC predicted. It could nevertheless fall to 71% by the end of 2019 due to the high forecast rate of nominal GDP growth, it concluded.