ADVERTISEMENT

GKI raises 2018 GDP growth forecast

EU

As GDP, earnings and consumption have grown faster than previously expected, economic research institute GKI has raised its 2018 GDP growth forecast from 3.8% to 4%. The projection is still under the governmentʼs official forecast of 4.3% growth, however. Household consumption will increase by 4-4.5% this year, GKI says.

Although the foreign trade surplus is decreasing due to the rapid rise in domestic consumption, the external balance will continue to improve as a result of mounting EU transfers, says GKI. Owing to the substantial advance payments from the general government necessary for accelerating EU transfers, the general government deficit in cash flow terms will be high and the decline in government debt will be modest, the GKI study predicts.

The EU is expecting an adjustment from the Hungarian government due to a high deficit compared to the favorable economic situation. Although the risk of an escalating global trade war has declined, the Iranian, Turkish, and Italian situations have already had negative effects on energy prices and exchange rates.

In March the growth of industry and, in particular, construction slowed down spectacularly. Following average monthly industrial growth of 5.4% in the first two months of 2018, it dropped by 2.4% compared with the previous year in March, while the performance of construction rose only 1.4% after 35% rises in the first two months.

An early Easter boosted the retail trade in March, as sales increased by 8.5%, nearly 1.5 percentage points faster than in the first two months, notes GKI. Revenues of hotels grew by 17% in March, almost twice as fast as in the first two months, it adds.

The consumption of households will increase by 4-4.5% in 2018, GKI predicts. Although the growth rate of gross earnings is slowing, it is still fast. Real earnings are expected to grow by about 7% in 2018, still very high, though less than the two-digit increase last year.

Unemployment fell by 0.7 percentage points to 3.9% in one year. In addition, the number of those employed in public workfare schemes decreased by more than 20%, notes the institute.

The unemployment rate is one of the lowest in the EU. However, if those employed in public work schemes were to be considered unemployed, the Hungarian unemployment rate would be around 7.4%, higher than the EU average, GKI notes.

Inflation accelerating

Inflation accelerated to 2.3% in April, compared to the average in the first four months of 2.1%. The prices of consumer goods went up faster; a new tax increase is expected for tobacco products from July. The rise in food prices is also above average, observes GKI.

Fuel prices began to rise in April, and gained momentum in May due to the rise in world oil prices and the weakening of the forint, the institute explains. However, the price per liter of petrol, at around HUF 400, is still well below its HUF 450 price six years ago. GKI projects the rate of inflation at around 3% in 2018.

The weakening of the forint was expected as the Fed’s interest rate increases were not followed by the National Bank of Hungary (MNB), says GKI, noting that its rapid and spectacular occurrence was mainly due to increasing distrust towards Turkey.

Although the general government deficit calculated according to the European methodology will probably remain below 3% of GDP, the so-called structural deficit, which takes into account the actual state of the business cycle in the economy, will be considerably higher than the rate promised to the EU, observes GKI. In addition, it adds, the reduction of government debt relative to GDP by some 0.5 percentage points to 73% will also be smaller than the EU expects.

ADVERTISEMENT

IMF raises Hungary 2021 GDP growth forecast to 7.6% Analysis

IMF raises Hungary 2021 GDP growth forecast to 7.6%

Parliament approves amendment to Competition Act Parliament

Parliament approves amendment to Competition Act

New CEO announced at Codic Hungary Appointments

New CEO announced at Codic Hungary

Budapest bike-sharing scheme boasts record ridership City

Budapest bike-sharing scheme boasts record ridership

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.