European Commission raises GDP growth forecast for Hungary

Brussels, February 13 (MTI) – Hungary’s real-term GDP growth is expected to be 3.5 percent this year, the European Commission said in its 2017 winter economic forecast released on Monday, in an upward revision from the 2.6 percent growth predicted in its earlier autumn forecast in November.

The EC put Hungary’s 2016 GDP growth to 1.9 percent, compared to the 2.1 percent growth it predicted in the autumn, but said economic growth could reach 3.2 percent in 2018, which is higher than the previously expected 2.8 percent.

The predictions compare to an updated government forecast, published in December, which put 2016 GDP growth to 2.1 percent and forecast it to pick up to 4.1 percent this year and to 4.3 percent in 2018.

Real GDP growth temporarily declined in 2016, mainly due to a 12.7 percent drop in investment in the first three quarters of the year which was associated with the changeover to a new planning period for EU investment funding, the EC said.

The government’s agreement with the private sector on wage rises and a cut of payroll taxes is expected to have a positive effect on growth as higher wages boost consumption and lower taxes boost investment. At the same time, the rise in the minimum wage may also drive firms to substitute labour with capital.

Household consumption is forecast to continue growing, driven by improved consumer confidence, an upturn in bank lending to households and continuing positive labour market trends.

Private consumption, rising by 5 percent in 2016, 4.8 percent in 2017 and 3.9 percent in 2018, remains the main contributor to economic growth, the EC said.

Exports of goods and services grew by 6.7 percent last year and could expand by 5 percent this year and by 5.9 percent next year. A 6.4 percent import growth in 2016 could be followed by a 6.8 percent growth in 2017 and a 6.7 percent growth in 2018.