EC Lowers Hungary 2023 GDP Growth Forecast 

EU

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The European Commission lowered its projection for Hungary's GDP growth next year to 0.1% in a fall forecast published recently, state news wire MTI reports.

The projection was lowered from 2.1% in a summer forecast released in July.

The EC raised its forecast for Hungary's GDP growth in 2022 to 5.5% from 5.2%.

"Confidence indicators have deteriorated and monthly data point to weakening consumption, housing transactions, construction activity and lending," the EC said. "Higher inflation and energy prices, as well as tighter financing conditions, are set to constrain economic activity in the coming quarters," it added.

The commission expects investment volume to decline in 2023, amid tight financing conditions and the deteriorating economic outlook, but it acknowledged the positive impact of government support on energy efficiency investments in the corporate sector. Building investment is set to decline as the real estate market cools and fiscal consolidation reduces public investment from earlier high levels, it said.

According to the projection, Hungary's current-account deficit will widen as far as 7.6% of GDP in 2022, before gradually narrowing to 4.3% by 2024. Rising energy prices are expected to raise Hungary's net energy imports by the equivalent of about 5% of GDP between 2021 and 2023, it said.

The EC said its baseline forecast is "fraught with downside risks", including energy supply disruptions, contingent investment plans of energy-intensive manufacturers, and tighter fiscal policy due to persistently high inflation or deteriorating financing conditions.

The commission forecasts average annual inflation in Hungary of 14.8% in 2022 and 15.7% in 2023. The EC noted that the forecast assumes an end to motor fuel price caps in January 2023, a measure that would add two percentage points to headline CPI.

The EC sees Hungary's general government deficit reaching 6.2% of GDP this year before narrowing to 4.4% in 2023 on temporary, windfall profit taxes and additional revenue from the sale of gas stockpiles by a special governmental entity. The EC put the fiscal cost of measures to mitigate high energy prices, such as a regulated utilities price scheme for households, at the equivalent of 0.9% of GDP in 2022 and 2.5% of GDP in 2023.

State debt, relative to GDP, is projected to decline from 76.8% in 2021 to 76.4% in 2022 and 75.2% in 2023.

The EC said worsening financing conditions are expected to boost Hungary's debt-servicing costs from 2.3% of GDP in 2021 to 3.4% in 2024.

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