London analysts upgrade Hungary growth forecast on VAT cuts, EU funds, base effects

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London-based emerging markets analysts at BofA Merrill Lynch have substantially upgraded their growth forecasts for Hungary’s economy, citing support from VAT cuts, strong EU funds absorption, loose monetary policy and favorable base effects, according to Hungarian wire service MTI.

In a report highlighting the key findings of a recent visit to Hungary, released in London yesterday, analysts at BofA Merrill Lynch Global Research, the London-based research unit of Bank of America Merrill Lynch, said they had revised their 2017 GDP forecast upward from 2.6% to an above-consensus 3.5%, “in view of significant fiscal stimulus and the EU funds pipeline, as well as easy monetary policy.”

“The government paid out around 1.8% of GDP in December 2016 after running a budget surplus in Jan-Nov 2016. Most of this money represents stimulus for 2017,” the analysts said.

This came on top of cuts in VAT, social contributions and corporate tax, and minimum wage hikes approved for this year. Preparation for EU funds absorption is also very advanced, well ahead of regional peers. A weaker than expected GDP outcome in 2016 also provides a favorable base effect, the economists said.

“We feel more constructive about the CE3 (Hungary, Czech Republic and Poland) growth outlook for 2017 in view of the progress on EU funds absorption. The situation is most upbeat in Hungary,” they added.

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