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EC raises Hungary 2021 GDP growth forecast to 7.4%

Analysis

The European Commission raised its projection for GDP growth in Hungary this year to 7.4% in a fall forecast published on Thursday, according to a report by state news wire MTI.

The projection was raised from 6.3% in a forecast released in July.

A week earlier, Hungary's Finance Ministry lowered its projection for GDP growth this year to 6.8% from 7-7.5% against the backdrop of higher energy prices, inflationary pressure, and the impact of the fourth wave of the pandemic.

The EC raised its forecast for Hungary's GDP growth in 2022 to 5.4% from 5%.

The commission acknowledged continued "robust" growth in the second quarter of 2021 but said global supply chain disruptions are set to "dampen" growth in the second half.

GDP growth in 2022 will be boosted by continuing fiscal stimulus, then is expected to slow to 3.2% in 2023 "as output returns close to its potential and policy support is gradually withdrawn" the EC said.

Household consumption is expected to benefit from "robust income gains, government support measures and buoyant consumer confidence", the EC said, noting a one-time personal income tax rebate for families raising in children, a PIT exemption for under-25s, the re-introduction of an annual pensioners' bonus and public sector wage rises in 2022.

The EC forecasts investment growth will reach 7.6% in 2021 and 8.4% in 2022. It said investment is set to "remain buoyant" on an improving economic outlook and "significant policy support" through grants and favorable financing conditions. Public investment is also expected to "grow markedly" in 2021-22, it added.

The commission projects Hungary will have a current-account deficit equivalent to 1.1% of GDP in 2021 and forecasts it will widen to 2.4% in 2022 as strong domestic demand fuels imports and higher global energy prices cause Hungary's terms of trade to worsen.

Consumer price inflation is set to peak at 6.7% in Q4 2021, according to the forecast, lifted by the reopening of the economy, global increases in goods and commodity prices, and pass-through of earlier currency depreciation. The EC acknowledged that regulated retail energy prices would partially shield households from the higher commodities prices. The EC puts average annual CPI at 5.1% in 2021 and 4.8% in 2022.

The EC projects the general government deficit, relative to GDP, will narrow from 7.5% in 2021 to 5.7% in 2022 and 3.8% in 2023.

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