Takarékbank raises GDP growth forecast, cuts inflation projection

MNB

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Hungaryʼs GDP growth could slow to 2.5% in 2016 but accelerate to 3.1% in 2017, Takarékbankʼs analysts said in their first-quarter macroeconomic analysis published yesterday.

Takarékbank predicted GDP growth of 2.4% in 2016 and 2.8% in 2017 in its previous, December forecast. 

Takarékbankʼs analysts said inflation could accelerate to 1.1% this year and reach 2.6% in 2017. 

The inflation forecast was down from 2.2% for 2016 and 2.7% for 2017 in the December projection. 

While investments are expected to decline in 2016, household consumption could become the engine for growth this year, the bankʼs analysts said. Investments could start growing again in 2017 as the government accelerates the utilization of European Union funding in the 2014-2020 financing cycle, they said. Investments of the household sector could also grow as a result of a cut in the VAT on new homes and as the extended home purchase subsidy scheme gathers momentum. 

Following the 15-basis-point interest rate cut on March 22, the central bank could cut the base rate by another 15 basis points on two occasions within six months, lowering its policy rate below 1%, Takarékbankʼs analysts said. The central bank is expected to use the interest rate corridor more and more actively in its daily liquidity management. The analysts do not expect a central bank rate rise until the end of 2017. 

The analysts said Hungaryʼs ESA budget deficit could be well within 2% this year and could fall close to 1% in 2017. The government debt fell close to 75% of GDP, and the process could continue in the next two years, with the debt falling below 70% around 2018, they added. 

The bankʼs analysts see the forint rate at 310 to the euro at the end of 2016, roughly unchanged from its current level, and expect to see only a modest forint strengthening by the end of 2017.

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