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EBRD lifts Hungarian GDP growth forecast

EU

The European Bank for Reconstruction and Development (EBRD) expects Hungarian real GDP to grow by 3% in both 2017 and 2018, the organization said yesterday in its latest Regional Economic Prospects report, according to Hungarian news agency MTI.

The EBRD raised its GDP growth forecast for 2017 from the 2.4% previously predicted in November 2016.

The economic outlook has improved in Hungary on the back of cuts in the rates of personal income tax and social security contributions, the EBRD said in the report.

The organization noted that economic expansion saw the second consecutive year of deceleration in 2016. Last yearʼs GDP growth, at 2%, was curbed by a dramatic fall in investment, which dropped by 15.5%. As in most other newer EU member states, public investment has been decreasing since the beginning of 2016. This can be attributed to the slow start of new EU 2014-20 programs, the EBRD added.

Amid still contracting corporate credit, private investment growth also remained negative. In contrast, household consumption was up 5%. Household disposable incomes were driven by 6% real wage growth and unemployment falling to just 4.2% in January 2017.

In 2017, cuts in social security contributions and the minimum wage increase will keep consumption strong but emerging skill mismatches and worsening demographic trends are expected to put further pressure on earnings, thus weighing on Hungaryʼs international competitiveness, the report warned.

The reduction of the corporate income tax to 9%, the lowest level in the EU, is expected to positively stimulate corporate investment, including from abroad, the EBRD noted.

For Central Europe and the Baltic states, the EBRD projects 3.1% GDP growth this year and next year.

The whole region covered by the EBRD could see 2.4% GDP growth in 2017 and a 2.8% increase in economic output in 2018.

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