GKI ups GDP forecast to 1.5%, warns of election economics

Analysis

TOO SMALL

Economic research company GKI raised its projection for Hungary’s GDP growth this year to 1.5% from 1.3% estimated in September. In its semi-annual forecast sent to national news service MTI on Sunday, GKI said the uptick is due only to investments financed from European Union funds. Forecast authors went on to note that while election economics are stimulating in the short term, a lasting base for growth cannot be created without reestablishing legal security and the capability to attract capital.

The government expects 2.0% growth for this year.

GKI said that the general government deficit can only be kept under 3% of GDP with additional measures later in the year, because the government has already started to deplete the budgetary reserve, the forint currency is weaker than planned, and market interest rates on bonds denominated in forint are to increase.

GKI expects Hungary’s exports to grow on the recovery in Europe, while consumer demand may also increase somewhat, helping companies providing for the domestic market; according to the analysis, however, this can yield only marginally more than the well above-average performance of agriculture last year, the repetition of which is doubtful.

Real earnings could increase 2%, GKI surmised, helping retail trade and private consumption to 1.5% growth. Consumers are cautious because the weak forint raises the burden of forex debts, the credit market is still frozen, and uncertainty is high, ran the analysis in part.

Industrial production is seen by GKI to grow 3% this year, with the recovery in construction slowing.

Business investments are scarce, and the impact of the Funding for Growth program of the National Bank of Hungary is minimal, just like that of the rate cuts by the central bank, because lower rates do not affect the basic problem of Hungary’s economy, according to GKI. Said problem is “the general lack of confidence resulting from the destruction of the institutional system of the market economy.”

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