EC Forecasts 0.7% Economic Contraction in Hungary for 2023

Analysis

The European Commission said Hungary's GDP was likely to fall 0.7% this year in its fall economic forecast released on Wednesday, according to a report by state news wire MTI.

The forecast is based on incoming data until October 31, ahead of the release of Hungary's latest GDP data for Q3, on November 14, but the EC correctly assumed quarterly GDP growth turned positive in the quarter. 

The EC had projected GDP growth of 0.5% in Hungary in its spring forecast, published in May.

The fall forecast puts 2024 GDP growth at 2.4% as real wage growth lifts consumption and big FDI projects in manufacturing boost investments and bolster the country's export performance as capacities enter production.

The EC sees Hungary's average annual inflation falling from 17.2% this year to 5.2% in 2024. It noted that a hike in the excise duty on motor fuel would add an estimated half a percentage point to headline CPI in 2024.

It projects a general government deficit equivalent to 5.8% of GDP in 2023, over the 5.2% target as VAT revenue underperforms and expenditures on interest and pensions climb. The gap is seen narrowing to 4.3% in 2024.

State debt levels are set to fall to 69.9% of GDP in 2023, but rise to 71.7% in 2024.

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