GKI: 2015 economic trends in Hungary uncertain

EU

GKI research firm forecast a 2% GDP growth for 2015, down from 3.2% this year, the firm said yesterday. Slower than expected world economy growth, a fall in oil prices and tensions between the United States and Russia are the key external factors in Hungary’s slowing economy.

“The [government’s] overall objective is to reduce the general government deficit below 3% of GDP at any price and to avoid the resumption of the excessive deficit procedure in order to get access to EU transfers”, GKI said in a report published yesterday, adding that “reform of large redistribution systems based on objective criteria is missing”.

With an accelerating inflation of 2% and a similar growth of wages, earnings and real incomes will reach near stagnation in 2015, while consumption is expected to grow by 1.5-2% – the same rate as in 2014.

Risks identified by GKI include EU funds being partially frozen, uncertainties in the investment climate, falling internal and external demand across all industries, a more vulnerable banking system and underestimated government expenditures.

The “government debt trajectory is not credible and the resumption of the excessive deficit procedure based on the renewed legal rules concerning government debt cannot be excluded even if the general government deficit remains below 3% of GDP”, GKI added, while external balance surplus is likely to decrease. GKI expects that MNB will most probably tolerate the weakening of the exchange rate of the forint to the euro as long as the yearly average remains below HUF 320.

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