EC sees Hungaryʼs economy contracting 6.4% in 2020

Analysis

The European Commission projects Hungaryʼs GDP will fall 6.4% this year in an autumn economic forecast published on Thursday, according to a report by state news wire MTI.

The projection is an improvement from a 7% decline in a forecast published in July.

The EC said economic activity in Hungary "rebounded vigorously" after a spring lockdown ended and global supply chains were restored, but added that the recovery is "set to pause" in the last quarter as the country experiences a strong second wave of the pandemic.

The commission projected a rebound after the pandemic, with growth reaching 4% in 2021 and 4.5% in 2022.

"Economic policy supports the recovery, but in some sectors, notably tourism and real estate, growth is expected to be back-loaded," the EC said.

"Investment is projected to recover only when the pandemic-related uncertainty abates and capacity utilization returns near pre-recession levels," it added.

The EC acknowledged policymakersʼ support for private investment, including grants, cheap financing, and a temporary reduction in the VAT rate for home construction.

It said Hungaryʼs exports stand to benefit from improved cost competitiveness because of the weakening of the forint

The impact of precautionary behavior of consumers and businesses on consumption and investment are a downside risk to the growth forecast, while upside risks are related to further stimulus measures.

The EC puts inflation a little over the National Bank of Hungaryʼs 3% medium-term target, but within the +/- one-percentage-point tolerance range.

The commission said this yearʼs general government deficit is likely to swell to 8.4% of GDP as budget revenue is impacted by tax cuts and a contracting tax base, while measures to manage the economic impact of the pandemic raise expenditures.

The EC projects the economy of the Czech Republic will contract by 6.9% this year. It projects a 3.6% drop in GDP in Poland and a 7.5% decline in Slovakia.

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