OECD predicts slowed economic growth in Hungary

Analysis

The Organisation for Economic Co-operation and Development (OECD) projected that Hungary's GDP growth would slow to 2.1% next year and to 1.7% in 2016 as a result of "tight credit conditions", in its economic forecast published today, adding that an "uncertain business environment" would limit investment.

The projection raised the ratio from the previous forecast of 1.6% published in May, however, it is well below the Hungarian government's projection of next year’s GDP being approximately 2.5%. OECD expects Hungary's GDP to reach 3.3% in 2014.

"Having absorbed the remaining cyclical slack, the economy is projected to slow, constrained by its pace of potential growth," the OECD said, noting that exports would "remain strong", but investment growth was expected to be "modest". The OECD acknowledged that the National Bank of Hungary's Funding for Growth Scheme, which supplies SMEs with cheap credit, had "gathered pace", nonetheless, corporate lending is expected to "remain tight".

Private consumption in 2015 is expected to increase as a result of the compensation due retail banking clients under borrowers' relief legislation approved this summer, but the measure also increases the risk of further credit contraction by reducing bank profits.

The OECD also warned, referring to the FX mortgage conversion law approved today, that the large and growing burden of the automotive sector on Hungarian manufacturing "could increase exposure to idiosyncratic shocks and thus output volatility". A weaker-than-expected Eurozone economy could also reduce export growth, it added.

The OECD said Hungary's consumer price index would average 2.0% in 2015, then rise to 3.0% in 2016 as the effects of household utilities price cuts wane.

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