EC projects faster growth, higher structural deficit for Hungary

MNB

The European Commission (EC) expects Hungaryʼs GDP to grow 2.5% in 2016 and 2.8% in 2017 in its fresh spring European economic forecast released today, an increase on both figures from the winter projection, Hungarian news agency MTI reported.

In addition to growing private consumption, investments are expected to drop less this year than earlier thought, helped by measures to boost the housing market and by more state investment, which will result in faster pick up next year, in contrast to earlier forecasts. 

Following improvements in 2014 and 2015, the general government deficit is expected to stabilize at 2% of GDP “despite a significantly increased fiscal room”, the EC said, basing its forecast on a no-policy change assumption. In the winter report released in February, it forecast the ratio to remain at 2% this year before a slight drop in 2017.

The EC forecast could not take into account the 2017 budget bill which was not released by the forecastʼs cut-off date. The 2017 budget bill submitted to parliament a week ago projects an ESA 2010 deficit of 2.4% of GDP.

The Commission now expects the structural budget balance to deteriorate sharply, to a further -2.9% of GDP in 2016 and then – based on the same no-policy-change assumption - to reverse to around -2.5% in 2017. Both figures are up from the respective -2.5% and -2.2% of the winter forecast. In addition to the cyclical upturn, the deterioration reflects one-offs, the EC said.

After dropping 0.9 of a percentage point to 75.3% last year, Hungaryʼs state debt as a percentage of GDP will remain on a declining path, dropping to 74.3% at the end of 2016 and to 73% at the end of next year, “even though delays in the receipt of EU funds are assumed to have a debt-increasing effect throughout the forecast horizon”, the Commission said. The 2017-end figure was raised 0.6 of a percentage point from the winter forecast.

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