OECD projects Hungary GDP growth will slow to 5% in 2022

Analysis

OECD projects Hungary's GDP will grow 6.9% in 2021, then slow to 5% in 2022 in a biannual forecast released on Wednesday, according to a report by state news wire MTI.

"The recovery will be driven mainly by domestic demand. Private consumption will continue to benefit from higher real incomes. Investment will rebound on the back of increasing industrial capacity constraints and inflows of EU funds," the OECD said in its latest Economic Outlook.

"Headline inflation will remain high, reflecting supply-side constraints and a tight labour market. A significant risk is that stronger wage growth and prolonged supply shortages could intensify inflation pressures," it added.

The organizations augurs a rise in average annual inflation from 5% in 2021 to 6% in 2022.

OECD said fiscal policy will "remain expansionary" in 2022, before "gradually consolidating" in 2023.

It puts the general government deficit, relative to GDP at 7.5% in 2021, 5.8% in 2022 and 3.9% in 2023.

The OECD noted that the National Bank of Hungary (MNB) started a tightening cycle in early summer, against the backdrop of that expansionary fiscal policy, and said "a better-balanced policy mix would help to contain inflation expectations".

It also said that structural reforms should focus on raising potential growth, and that labor taxes should be further lowered to help address labour shortages, financed by lower spending and increased consumption, property and environmental taxation.

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