OECD Forecasts Flat GDP for Hungary in 2023

Analysis

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The OECD forecasts Hungary's GDP will stagnate this year in its biannual Economic Outlook published on Wednesday, according to a report by state news wire MTI.

The forecast was lowered to 0% from 1.5% in November.

"High inflation is eroding household purchasing power and consumption, while tight financial conditions and economic uncertainty are holding back investment," the OECD said.

The OECD puts average annual inflation at 19.2% for 2023. It projects investment volume will contract 3.5%.

The OECD projects a pickup in GDP growth to 2.5pc in 2024. It sees average annual inflation falling to 5.4pc.

"Declining energy and commodity prices, tight financial conditions, and slower job creation contributing to slightly higher unemployment and slower wage growth are expected to pull down inflation, especially in the second half of 2023 and in 2024," the OECD said.

It projected a "progressive pick-up" in GDP growth driven by rising investment as well as private consumption "to a lesser extent".

Downside risks to the forecast include stronger-than-expected wage pressures, more persistent inflation, especially for food and core items, renewed pressure on the exchange rate, and potential energy supply restrictions during the winter, the OECD said. On the upside, a faster recovery in export markets would stimulate domestic production, it added.

The OECD noted the importance of reducing the budget deficit further and reaching an agreement on the transfer of European Union funding for maintaining investor confidence. It suggested that incentives for improving the thermal efficiency of housing stock could be bolstered, while productivity growth could be boosted by "a more competition-friendly regulatory framework". It faulted a "rigid housing market and an underdeveloped rental market" for holding back labor mobility, and said "insufficient availability of affordable, high-quality childcare" was a barrier to the participation of young women in the labor market.

Hungary's government targets GDP growth of 1.5% in 2023 and 4% in 2024.

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