Forecast for 2017

The Hungarian economy grew by 4.2 per cent in the first quarter of 2017, by a rate not foreseen by anybody. A growth rate higher than this one has been recorded only once since 2007. This high rate was due in part to the low base. The Hungarian growth rate was much higher than the EU average; however, it was not outstanding in the CEE region. The growth rate in Romania and Slovenia was more than 1 percentage point higher than in Hungary, and the economic growth of Poland and the three Baltic countries was also more dynamic. Data indicate a deterioration in Hungary in April, and the fall in the performance of agriculture will be significant in 2017. The growth rate of consumption is expected to accelerate in 2017, whereas a sharp slowdown in investments can be anticipated. Therefore, GKI raised its growth forecast for 2017 from 3.2 per cent to only 3.5 per cent, although it is possible that the rate will be slightly higher. Although external and internal equilibria will deteriorate slightly, and inflation will accelerate, these trends are acceptable in the short term. It is important for the medium-term course of the Hungarian economy that after the German elections the deepening of the integration of countries willing to work in close cooperation will be on the agenda in the EU. This can push Hungary to the periphery of the EU. At the same time, Hungary will less likely be able to rely on EU transfers of crucial importance.

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GKI’s economic sentiment index reached its historic peak in June

GKI’s economic sentiment index was as high as now only once, namely in the summer of 1998, and the business confidence index has never been as high as now so far during its more than twenty years of history. Consumers are also very optimistic. However, this outstanding Hungarian optimism hardly exceeds the upper limit of the relatively narrow band characteristic of the last three years.

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Growth faster than expected

In the first quarter of 2017, Hungarian GDP expanded by 4.1 per cent, faster than expected. Therefore, GKI revised its growth forecast upwards to an annual growth rate of at least 3.5 per cent before gaining detailed data. Construction and industry grew faster than previously thought, whereas the growth rate of trade was slower. This is particularly surprising in the light of extremely fast increase in wages.

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GKI economic sentiment index reached its three-year peak in May

In spite of its relatively modest rise in May, the GKI economic sentiment index reached its three-year peak. According to the empirical survey conducted by GKI with the support of the EU, the rise was mainly due to service companies: their exploding optimism raised their sentiment index to a level unseen for eighteen years. Expectations in industry deteriorated slightly, whereas those in trade dropped considerably. Expectations in construction barely improved and those among consumers improved only within the statistical margin of error.

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Faster than expected industrial and slower than expected retail growth

In 2017 the growth rate of the Hungarian economy accelerates from 2 per cent to 3.2 per cent, mainly due to the restart of EU transfers. Following their decline by 20 per cent last year, investments will expand by 8 per cent in 2017, whereas the growth rate of consumption will accelerate from 4.2 per cent to 5 per cent. As far as production is concerned, it will be boosted by construction, which has already been able to work off a large proportion of its decrease last year. Growth can be projected in all sectors, with the exception of agriculture, where a “natural decline” can be expected after last year’s uptick. Inflation will accelerate. Although external and internal equilibria will deteriorate slightly, they remain favourable. No substantial improvement can be expected in the main factors determining long-term development (in terms of the functioning of institutions, neglecting market solutions, and starting real structural reforms).

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