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GDP growth steady, exports may slow, EC predicts

The European Commission (EC) has confirmed its earlier projection for Hungaryʼs GDP growth this year of 4% in its Summer 2018 Interim Economic Forecast. The EC puts 2019 GDP growth at 3.2%, also confirming its previous forecast in May.

The official Hungarian government forecasts for GDP growth are 4.3% for 2018 and 3.8% for 2019, higher than those predicted by the European Commission, noted Hungarian news agency MTI.

"GDP growth remained steady at 1.2% quarter-on-quarter in the first quarter of 2018, supported mainly by domestic demand," says the EC report. "However, exports failed to keep pace with rising import demand. Sentiment indicators have remained buoyant up to June, but recent production data indicate some slowdown in the second quarter," it adds.

The level of industrial production has been flat since the beginning of the year, and construction output has decreased, notes the EC. Private consumption is set to grow robustly in 2018 with rising employment and dynamic real wage growth.

Investment remains broad-based, supported by high capacity utilization, rising public capital expenditure, and the recovery of the real estate sector. The cyclical upswing of domestic demand is set to moderate in 2019, causing GDP growth to slow, the forecast says.

While domestic demand remains dynamic, the external environment has become less supportive, and growth in Hungaryʼs main export markets is forecast to remain moderate. Consequently, Hungarian export growth may slow down in 2018, says the EC, despite major new manufacturing capacities being launched. The prominent role of the automotive industry makes the economy sensitive to global trade disputes, creating a new risk for the outlook, the Commission notes.

Inflation rose to 2.9% in May (and to 3.1% in June), as oil prices surged and the forint weakened. The weaker exchange rate may also raise non-energy prices in the coming quarters, the report says.

Meanwhile, the tight labor market and administrative wage hikes are maintaining upward pressure on wages, which will gradually feed into core inflation. Consequently, inflation is expected to remain near 3% throughout 2019. The aggregate effect of newly planned indirect tax measures on inflation is broadly neutral in 2019, the Commission observes.