The Hungarian economy is essentially proceeding on a path indicated in September. Owing to the fall in EU transfers, GDP growth in Hungary slowed down to 2 per cent 2016. It is expected to accelerate to around 3 per cent in 2017 due to the rise in EU transfers and accelerating growth in consumption. As a result of the significant wage increases in 2017, growth in consumption will be 5 per cent, that is, 1 percentage point faster than previously expected. Inflation will also pick up in 2017, from 1.5 per cent to 2 per cent. However, the situation of the general government in 2016 is much more favourable than previously thought, in part due to one-time revenues. Although the government realised that GDP growth based on cheap labour was sputtering, economic competitiveness was deteriorating, and Hungary became excessively dependent on EU transfers, the government failed to revise the Hungarian model. Thus, we can only expect some temporary improvement rather than genuine changes, and the using up of EU transfers and the lagging behind the CEE region will continue.
After November, the GKI economic sentiment index rose again in December. According to the empirical survey conducted by GKI with the support of the EU, business expectations increased slightly, whereas consumer ones went up more strongly, reaching their ten-year peak (being almost at their level of April 2006). The GKI economic sentiment index has fluctuated in a relatively narrow band for three years, and now it is somewhere around the top of this band.
The 2 per cent GDP growth in the third quarter of 2016 confirmed the correctness of the 2 per cent growth forecast of GKI for 2016. In recent weeks, the IMF reduced its forecast to 2 per cent and the EU to 2.1 per cent, which is significantly lower than expected growth rates in the region. The significant decline in investments in 2016 will be followed by a noticeable growth in 2017 mainly due to the restart of the inflow of EU transfers, while the increase of consumption, which is very rapid this year, will continue similarly. GKI expects GDP to grow by 2.7 per cent in 2017, which is almost identical with the projections of the IMF and the EU. At present, internal and external equilibria are very favourable; however, some manageable deterioration can be expected next year due to the start of government spending related to the forthcoming parliamentary elections. Inflation began to pick up, too.
Following its three-year low in October, the GKI economic sentiment index strengthened to its spring level in November. According to the empirical survey conducted by GKI with the support of the EU both business and consumer expectations improved in November. The GKI economic sentiment index has fluctuated in a relatively narrow band for two and a half years, and now it is somewhere around the middle of this band.
In October, the Budapest and the Hungarian real estate market indices of GKI-MGYOSZ stood at +4 and -2 points respectively. The index figure in Budapest was nearly 4 points higher than a quarter earlier, while the national index was almost equal to the figure measured in July (up within the error margin). Compared to one year earlier, the Budapest index went up 10 points and the national one has increased 7 points.