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Hungarian government projects GDP growth over 3% through 2020

Ratings

The Hungarian government anticipates GDP growth to remain over 3% in the period of 2018-2020, an update of the countryʼs Convergence Program sent to Brussels yesterday shows, according to Hungarian news agency MTI.

The updated program, which Hungary must submit to the European Commission (EC) each spring, projects GDP growth of 3.4% for 2018, 3.1% for 2019 and 3.2% for 2020. 

Investment growth is seen accelerating to 9.6% in 2018 from 9.1% in 2017, before slowing to 5.5% in 2019 and 4.0% in 2020. 

Expenditures on household consumption are set to climb by 3.7% in 2017, then slow to 2.8% in 2018 and 2.7% in both 2019 and 2020. 

Export growth is seen picking up from 6.3% in 2017 to 6.8% in 2018, 7.0% in 2019 and 7.3% in 2020. 

Import growth is expected to accelerate to 7.6% in 2018 from 7.4% in 2017, before slowing to 7.0% and 7.1% in 2019 and 2020, respectively. 

The government projects the trade balance will have a 0.4-percentage-point negative impact on the GDP growth rate in 2017 and a 0.1-percentage point negative impact in 2018. The trade balanceʼs impact is seen turning positive again from 2019, contributing 0.7 percentage point and 0.9 percentage point to GDP growth in 2019 and 2020, respectively. 

The projections in the programme show CPI rising from 0.9% in 2017 to 2.4% in 2018, then levelling out at 3.0%, the National Bank of Hungaryʼs mid-term "price stability" target, in 2019-2020. 

The output gap is expected to narrow from 0.6% of GDP in 2017 to just 0.1% in 2018-2019, before the economy reaches full capacity in 2020. 

The government projects this yearʼs general government deficit will reach 1.9% of GDP, coming in under the 2.0% target in the budget act. The deficit is set to narrow from a targeted 2.4% in 2017 to 1.8% in 2018, 1.5% in 2019 and 1.2% in 2020. 

The primary balance, which excludes the cost of servicing debt, is projected to remain steady with a surplus of around 1.0% of GDP in 2018-2020 after dipping to 0.6% in 2017. 

The program noted that Hungaryʼs structural deficit, which excludes cyclical and one-off effects, had been well under its 1.7%-of-GDP Medium-Term Objective since 2012, but it would rise temporarily over the MTO in 2016 and 2017, before returning to the target in the mid-term and falling under the objective in 2020. 

State debt as a percentage of GDP is set to fall to 73.6% in 2017, 72.4% in 2018, 68.4% in 2019 and 64.6% in 2020. 

The updated programme puts the unemployment rate among Hungarians aged 15-74 at 5.1% in 2018-2020, down from 5.2% in 2017. 

In an upside risk scenario, assuming strengthening confidence, the National Economy Ministry estimated 0.07-0.27 percentage point could be added to GDP growth in 2017-2020, mostly on the back of a bigger contribution by investments. In a downside risk scenario, envisioning a deterioration in external demand, it estimated the negative impact on GDP to be 0.26-0.31 percentage point, mainly because of the effect on exports and imports. 

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