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OECD leaves Hungary GDP forecast at 3.9% for 2019

The Organisation for Economic Co-operation and Development (OECD) left its projection for Hungaryʼs GDP growth this year unchanged at 3.9% in a biannual forecast released on Tuesday, state news wire MTI reported.

The projection is a hair under the governmentʼs forecast for 4% growth. The OECD sees Hungaryʼs GDP growth slowing to 3% in 2020.

In a country note, the OECD said tight capacity constraints are reducing GDP growth, with expanding demand being increasingly satisfied via higher imports.

It said private consumption remains strong, helped by rising real incomes, high consumer confidence and supportive macroeconomic policies. Investment growth is "buoyant," supported by EU funding, home support schemes and the need to expand production capacity, it added.

The OECD projects private consumption will grow 4.6% this year and 4% next year. It sees gross fixed capital formation climbing 10.2% in 2019, and 4.3% in 2020.

The OECD said growth would slow against the backdrop of rising inflationary tensions and argued for a gradual reversal of economic stimuli. It acknowledged a recent tightening by the National Bank of Hungary, but said policy normalization should be continued as "higher rates are needed to contain inflation expectations."

Hungaryʼs "strong recovery is an opportunity to introduce measures to improve fiscal sustainability, reduce old-age poverty and address access challenges in the pension and health system," the OECD said.

Fostered work schemes could be scaled back faster in light of expanding employment on the primary labor market, and those measures should be combined with investing in childcare to allow a return to work by parents, it added.

"Bolstering domestic SMEs should focus on improving business regulation, facilitating their integration into regional and national supply chains, and upgrading skills," the OECD said.